NISSHINBO ANNUAL REPORT 2005

2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 / Fax: 03-5695-8970
URL: http://www.nisshinbo. co.jp/

Year ended March 31, 2005

Printed in Japan

Annual Report 2005
(Year ended March 31, 2005)

True Colors

Financial Highlights(Years ended 31st March)

Consolidated:(millions of
US dollars)(millions of yen)

Net Sales
Net Income
Shareholders’ Equity

2005

2004

2005

¥ 243,421
8,199
222,771¥ 226,883
3,919
214,132$ 2,318
78
2,122

¥

$

Per Share:(yen)

Net Income
Shareholders’ Equity
Cash Dividends

CONTENTS¥

39.03
1,072.54
10.00(US dollars)

17.86
1,030.98
7.00

0.37
9.82
0.10

The United States dollar amounts in this report are given for convenience only andrepresent translations of Japanese yen at the rate of ¥105=US$1.

Profile — 1
Business Lineup — 2
Interview with the President — 4
Corporate Governance, Risk Management andEnvironmental Management — 12
Review of Operations and Financial Review — 13
Six-year Summary — 19
Financial Section — 20
Nisshinbo History — 32

Net Sales

Net Income(billions of yen)(billions of yen)

Shareholders’Equity(billions of yen)

Nisshinbo Group — 33
Board of Directors / Corporate Data — 34

10

250

250

Organization Chart — 35
8
200

200
6
150

150

4

2

100

100

0
50

50
-2

0

The paper used for this Annual Report is fromNisshinbo’s VENT NOUVEAU series of fine papers.

0-4’01 ’02 ’03 ’04 ’05’01 ’02 ’03 ’04 ’05’01 ’02 ’03 ’04 ’05

In this annual report, statements other than historical facts are forward-looking statements that reflect our plans andexpectations. These forward-looking statements involve risks, uncertainties and other factors that may cause ouractual results and achievements to differ materially from those anticipated in these statements.

Industries, Inc. (the “Company”)
was founded in 1907 as amanufacturer of cotton yarns and threads, and quickly assumed aposition of leadership in the industry. Our nearly 100-year history has
been characterized by strategic moves taken in advance of competitorsand designed to raise
productivity, improve
quality and add value.
Today, we are a total
manufacturer, controlling
operations from spinningto finishing and garments. This, together with our accumulated highlevels of technology, gives us an advantage in the development of truly
distinctive products and in quality control.
Through the application in other fields of technologies andexpertise originally developed in the textiles area, we have diversified
our operations into the manufacture of automobile brakes, papers,
chemical products and others. These non-textile lines have grownsteadily, and now account for over 66% of consolidated net sales.
We offer a truly diverse range of products tailored to customer
needs: high value-added finishing processing
and products in the textiles segment, includingSUPER SOFT, Nisshinbo Shirt and NON
CARE, as well as new-generation electronic
braking systems, high heat-insulation panels,
and bipolar plates for fuel cells.
“Nisshinbo,” comprising the Company andits consolidated subsidiaries and affiliates, aims
to be a 21st century manufacturer offering alineup of highly efficient leading-edge
production systems and a diverse range of highvalue-added products. With its approach thatemphasizes innovation, Nisshinbo will strive tosolidify its position as a highly profitablecompany that contributes to society through its
diverse product lineup.

NISSHINBO

1

Business Lineup

TextilesNon-textiles■ Textile products have been the mainstay of our business since ourfoundation. We lead the Japanese textiles industry with our highquality products, backed up by our accumulated technology, andhave gained the trust of customers. In line with efforts to
manufacture our products in the most optimal locations worldwide,
we are currently strengthening the production structure for ouroverseas operations, as we supply a diverse range of products inJapan and overseas. With our products having earned the deep trustof users, we have high shares of the domestic market for suchprincipal products as shirts, denim, uniforms and bedding.
We undertake comprehensive operations, including spinning andfinishing, and by integrating manufacturing and sales activities wehave established a flexible system that enables us to supply original
products that overseas manufacturers cannot match for quality. Oneof our particular strengths is an ability to respond quickly to theprecise needs of customers.
We also offer an abundant lineup of innovative high value-added
products that include 100% cotton NON CARE wrinkle-free shirts,
100% cotton stretch PURE TWIST, banana fibers, GAIA COT, andthe Nanoscience series of products. In the shirts industry, working
together with subsidiaries, Nisshinbo is producing products with ahigh-inished ratio using the respective strengths of these subsidiaries
in materials, processing and sewing. Nisshinbo is also undertaking
dynamic overseas activities ranging from manufacturing to sales.
With production bases in China, Indonesia and Brazil, we arecultivating our global competitiveness and working to promote salesof high value-added products. Primarily through our Global
Operation Promotion Office, we are involved in supporting thedevelopment of our overseas operations. NISSHINBO(SHANGHAI) CO., LTD., in China, is strengthening its sales
activities and recording growth in sales.

■ AUTOMOBILE BRAKESWe are a leading Japanese manufacturer of friction materials andautomobile brakes, and this sector has an important role in our drive
toward diversification. In accordance with the principal themes“promoting globalization” and “developing competitive products,”
we adhere to a policy of overall optimization and strive to carry out
unified activities in Japan and overseas.
By obtaining a clear picture of customer needs, we look to the
future and undertake technology development and investments inareas related to high coefficient of friction, noise/vibration
characteristics, improvements of brake pad life, application of new,eco-friendly technologies, construction methods and materials. Our
product development emphasis is on “green” pads using
environment-friendly materials.
In parallel with the development of our own technologies, we
engage in technology exchange and collaborate with major overseas
brake manufacturers. We have also set up production bases forfriction materials and automobile brakes in the United States,
Thailand, South Korea and China in order to strengthen ourpresence in those markets.
Nisshinbo is progressing with the transfer of its ABS business toan affiliate and is establishing a brand of compact, high-performanceand lightweight ABS. The products we offer include a diverse rangeof control systems such as stability control systems.
■ PAPERS
We manufacture a wide range of paper and paper-related products,
including household papers, such as tissue paper, toilet paper andkitchen-use paper towels; fine papers used for quality printing,publications and packaging and synthetic papers; and labels. Ourbasic policy is to accurately ascertain market needs and develop andprovide stable supplies of high-quality papers that feature originality
and that are outstanding in terms of people- and environmentfriendliness. Our extensive lineup of value-added products, whichhave numerous features, include COTTON FEEL, a household
paper made using our spinning technologies, VENT NOUVEAU
and MILT GA, natural-feel fine papers for high-quality printing,and synthetic papers for fine digital printing.
■CHEMICAL PRODUCTS
With a basic policy of selection and concentration as well as
globalization and strengthening technology development
capabilities, this segment provides such products as various

2Consolidated Sales Composition(%)

Sales by Segment in
Fiscal 2005
(%)

100

Textiles 33.8

80

types of polyurethane foams, elastomers, carbon products andnewly developed products to a broad range of fields, including
industrial fields.
We produce rigid-type polyurethane foam used for heatinsulation material, flexible types used for cushion material, and a
glass fiber-reinforced polyurethane foam, which is a lightweight,
strong, corrosion-resistant material widely used in the water
treatment and construction industries. In the civil engineering field,
we provide products such as SET FOAM and are expanding thescope of our business operations, which includes a subsidiary that
acquired a construction materials company. We were also pioneers in
the introduction of environment-friendly, non fluorocarbon rigidtype polyurethane foam, which has earned high acclaim from
customers. We are also working to develop products made fromrecycled polyurethane foam waste material. Moreover, we are
expanding the applications of our original polyurethane elastomer
Nisshinbo Mobilon, which has excellent elasticity and water resistantcharacteristics and is used in a number of industrial products andconsumer goods fields. In addition, we provide new carbon products
for application mainly in semiconductor production and otherelectronics sectors. Our N’s VIP vacuum heat insulation panels have
six times the heat insulation capabilities of conventional
polyurethane foam. Currently, N’s VIPs are being used for suchapplications as household refrigerators and vending machines, andwe are working on applications in new fields and overseas. We also
produce molded plastic cross flow fans for air conditioners forelectric appliance markets, mainly in China and Southeast Asia.
■ REAL ESTATE LEASING
We are engaged in the real estate leasing business that involves
efficient utilization of unused land to contribute to earnings. We
lease office and residential buildings in Tokyo (our former
headquarters), and land previously occupied by factory facilities foruse as shopping centers and model homes.
■ OTHER PRODUCTS• Precision Instrument & Machinery
This division was formed in April 2004 through the merger of the
ABS and Mechatronics businesses. This division is expanding its
business utilizing the outstanding technologies of the two forerunnerdivisions. The new division handles production system products forautomobile manufacturing facilities and solar module manufacturing
facilities as well as precision processed components for automobiles.

60

Automobile Brakes 22.3
40

Papers 11.7
Chemical Products 14.1

20

Real Estate Leasing 2.0
Other Products 16.1
0
’01

’02

’03

’04

’05

Note: Chemical Products, previously included in the Other Products sector, was treatedindependently from fiscal 2003 due to the growing importance and potential of the sector.
Figures for previous fiscal years have been adapted to take account of this change.

In sheet metal processing machinery, we developed and introduced
specialized turret punch presses specifically for the China market.
Global production volume of solar modules increased 60% from theprevious year, clear evidence that the scope of solar module
production is expanding. To ensure we accurately respond to theneeds of customers, we formed a contract for cooperation with anoverseas licensor of solar module manufacturing equipment, as we
strived to strengthen our product development capabilities andupgrade our lineup. In addition, we supply precision processing
products to the automobile and other industries on an OEM basis.
We are also cultivating new business using the synergies achieved byfusing technologies for design and manufacture of machinery
facilities with precision cutting and processing technologies, which
are core technologies.
• Others
We offer a diversity of independently developed products that
include newly developed products that will become businesses in thenext generation. We also provide bipolar plates for fuel cells, whichhave high promise in next-generation energy system applications. In
functional chemicals fields, we offer Polycarbodiimide, a leading-edge
material that acts on the properties of substances. We have highhopes that this will find applications in diverse fields. The use of thismaterial is already expanding in environmental fields. Nisshinbo alsooffers such water quality improvement materials as APG ® (Aqua
Porous Gel) and BCN® (Bio Contact N). We develop and supply
production systems that integrate the CHOSHOKU SENKA fuzzy
logic computer color matching (CCM) system, our manufacturing
process support system and the enterprise resource planningpackage. By doing so, we are supporting manufacturing fields fromthe software side.

3

Interview with the President
you briefly review your consolidated
Q1. Could
business results for fiscal 2005, ended March 31,
2005, and explain the progress of your three-year plan?
n fiscal 2005, consolidated net sales advanced
7.3% to ¥243,421 million (US$2,318 million),reflecting strong results in our Automobile Brakes, Chemical
Products and overseas businesses. Despite such profit-squeezing
factors as inventory disposals at a subsidiary in our Textiles business,
we achieved a 13.6% increase in operating income to ¥9,651 million(US$92 million). After accounting for a gain on the return of theproxy portion of the employee pension fund and a loss on the early
application of fixed asset impairment, net income soared 109.2% to¥8,199 million (US$78 million). By business segment, sales of the
Textiles Segment jumped 20.1% to ¥82,163 million (US$783
million), and sales of Non-textiles edged up 1.8% to ¥161,258
million (US$1,536 million). The ratio of Textiles sales to total sales
increased 3.7 percentage points to 33.8%, while the ratio of Nontextiles sales to total sales declined a corresponding 3.7 percentage
points to 66.2%.
Net sales reached their highest level since fiscal 1992, while
operating income and net income rose to the highest amounts
recorded since fiscal years 1988 and 1993, respectively. Looking at
the progress of our three-year plan, net sales in fiscal 2005 virtuallyreached the plan’s second-year target of ¥245,000 million. However,operating income did not meet the plan’starget of ¥11,000 million. Although
we are by no means completely
satisfied with this performance,these results give me the strong
sense that initiatives aiming at
rebuilding our businesses andstrengthening our earnings power are
now finally beginning to bear fruit.

I

Three-year Management Plan 2006

Yoshikazu Sashida, President

Basic Objective•Increase profitability with the aim of enhancing corporate value
Key Tasks• Business plan: Formulate business plans for each segment and verify progress• Performance assessment: Assess segment performances every term based on the performanceassessment criteria• Consolidated management: Reinforce management capabilities of the Group companies• New businesses: Promote commercialization of R&D themes companywide
Promotional Measures
In response to changing public perspectives on companies and globalization of management, the Company
will promote the following measures to take a more central role in the market.
1. Stress Customer Satisfaction (CS)
2. Improve asset efficiency
3. Establish globally optimized production and distribution systems
4. Form flexible corporate alliances and concentrate management resources on key areas of strength
5. Develop and reinforce new businesses
6. Enhance investor relations
7. Ensure full compliance4Based on the determination that Nisshinbo’s earnings structure
is now firmly in place, we will increase cash dividends ¥3.00 per
share to ¥10.00 (US$0.10).
is the outlook for fiscal 2006, the final year
Q2. Whatof the three-year plan? Also, could you outline
the measures you will implement to achieve the plan’stargets?
or fiscal 2006, we are forecasting a 3.1% rise in
net sales to ¥251,000 million and an 8.8%
increase in operating income to ¥10,500 million. Although we
expect net income to decline 14.6% to ¥7,000 million, whenexcluding the extraordinary gain recorded in fiscal 2005, net income
will be virtually the same level as the amount recorded a year earlier.
Let me now discuss the targets for the final year of the threeyear plan. We are confident of exceeding our sales target of ¥250,000
million but anticipate that operating income will be less than ourtarget of ¥12,500 million, primarily because a profit recovery in our
mainstay Textiles segment is still lagging slightly. Nonetheless, amain emphasis will be attaining our operating income target and wewill make unrelenting efforts to achieve this goal.
In accordance with the slogan “achieve the goal of the three-yearplan 2006,” our basic approach in fiscal 2006 calls for every
Nisshinbo Group employee to maintain a constant awareness of all
stakeholders, make self-initiated efforts to approach their work withunbridled enthusiasm and combine their efforts to attain the goals of
the three-year plan.
The comprehensive theme of our three-year plan is to transition
from “stock-type” management, which is Japanese-style
management that focuses on the accumulation of various types ofassets and other management resources, to flexible “flow-type”
management, which stresses short-term profits and dividends. In

Fother words, we will strive to create a cycle whereby we “utilize ourso-called stock to increase profits in each fiscal year” and to alter
Nisshinbo’s DNA to enable the Company to apply its DNA to
future businesses. These will be our consistent and ongoing themesin the coming years.
Our basic course of action in the coming year will be toproactively expand the Nisshinbo Group’s operations, including
promoting globalization, strengthening our business alliances,bolstering our development capabilities and increasing and fortifying
facilities in growth businesses. In undertaking these initiatives, wewill set strategic targets for each business in accordance withrespective markets.
In our Textiles business, we intend to increase businessdevelopment on four fronts, namely expand downstream productbusinesses; deploy our base in Shanghai to increase textile shipments
within China and exports to the United States and Europe; broaden
overseas business on a consolidated basis via strengthened ties withoverseas affiliated companies; and expand product development,
including development in collaboration with major users.
Principal themes in our Automobile Brakes business areproceeding globalization and developing highly competitive
products. We presently operate automobile brake production sites in
the United States, Thailand, Korea, and China. This structure
provides us with excellent coverage of Japan, Asia, and the U.S.
markets. As we have no production base in Europe, we areestablishing a sales branch in that region. I believe thatcompetitiveness consists of three elements: quality, costs and newfunctions. Of these three, the most important and critical is“quality.” For this reason, we would like to strengthen our qualityassurance structure. We are also facing exceedingly stringent costrelated demands from our customers and will respond by developing
the use of new production methods. In our ABS business, theProgressing with Application Development and Creating New Technologies
Electrical Double-Layer Capacitor (N’s CAP)

R&D Expenditure

Features — This electric power storage device uses Nisshinbo’s originally developed ion liquid,
which is outstanding in terms of environment friendliness. This capacitor boasts the world’s
highest-class performance capabilities.

(billions of yen)

Collaboration — Through cooperation with Japan Radio Co., Ltd., Nisshinbo developed amodule adapted to large current charge and discharge.
8

Fields of application — Electric vehicles and others

Electrical double-layer capacitor
6Life Sciences (DNA microarray)
Features — The combination of a large spot enabling visual detection and plastic based slide
allow for the DNA microarray technology to be much more simply handled and analyzed. This
product boasts the world’s highest-level functions.

4

Fields of application — Diagnostics, bio-related research2

Number of Patents in Fiscal 2005
(As of March 31, 2005)

Domestic and overseas
Patent applications outstanding

806
1,323

DNA microarray0’01 ’02 ’03 ’04 ’05

5Interview with the President

transfer of business to Continental Teves Corporation, an equitymethod affiliate, is proceeding smoothly.
In Chemical Products, our lineup of polyurethane foams cover awide spectrum, ranging from soft-type to rigid-type. Within
polyurethane foam, however, there are disparities in earnings among
different products, and we therefore plan to reevaluate this businessand implement a policy of selection and concentration. In
elastomers, we will strengthen our business foundation and fortify
our overseas operations. Additionally, we will focus on improving
the profitability of our carbon silicon products business. At the sametime, we will solidify the foundation of our overseas business forhighly functional N’s VIP vacuum heat insulation panels.
Regarding paper products, our Papers Division offers a diverse
assortment of papers that include household papers and fine papers,
and this division records brisk business and achieves stable results.
Although sharp growth is unlikely, the Papers Division will strive todevelop distinctive products, reduce costs, make earnest efforts tooffer appealing products to customers and raise profitability.
Looking at other businesses, the Precision Instrument &Machinery Division is accelerating activities targeting such growthfields as solar cells and automobile-related products. This division
will also strengthen OEM business and cultivate new
businesses by combining its precision cutting processing
technologies with its mechatronics technologies.
Turning to R&D, during fiscal 2005, Nisshinbo
withdrew from the PDP optical filter business, where
prospects for improved profitability were bleak. On abrighter note, we are currently on schedule with thecommercialization of such functional chemical products
as bipolar plates for fuel cells and CARBODILITE, ahighly functional polymer resin. We also have highFour Basic Policies in the Textiles Segment
1. Expand downstream productbusinesses• Carry out business in cooperation with Naigai
Shirts Co., Ltd. and CHOYA CORP., whichmarket NON CARE and Nisshinbo Shirt.
• Search for the next M&A target following theacquisition of the two previously mentioned
companies.
• Strengthen handling capabilities through theestablishment of an Apparel Team in April
2005.

3. Expand textile exports• Establish new business modelHigh value-added textiles in Japan(denim, shirt fabric, casual fabric)

Sewing by joint ventures in China

NON CARE

2. Expand consolidated
business by improving
results of overseas
production plants andbusiness sites• Carry out investment activities
to expand overseas
production and improve
quality.

6

NISSHINBO (SHANGHAI) CO., LTD.
(sales)European Market

Chinese Market
U.S. Market Japanese Market

4. Expand product development, including
collaboration with major users

Ningbo Veken Textile Co., Ltd.

Ningbo Sunrise Textile Dyeing
and Finishing Co., Ltd.

• Develop healthy, comfortable and environment-friendly products.
(NON CARE, Nanoscience, PURE TWIST, GAIA COT and banana
fibers)hopes for the commercialization of two other products now in the
R&D process: an electric double layer capacitor that utilizes
Nisshinbo’s original “ion liquid” as an electrolyte and DNA
microarrays, that have applications in the life science field. For thetime being, we will concentrate on cultivating our business in thesefour fields.
you explain the factors underlying yourQ3. Could
decision to withdraw from the PDP optical filter
business? Will this retreat influence your approach to new
businesses in the future?
rom the very outset, our PDP optical filter
business was never an integrated productbusiness whereby Nisshinbo manufactured filters beginning with the
production of raw materials. Instead, we purchased necessary raw
material glass and film for processing into PDP optical filters. A
chief advantage of this approach to the PDP optical filter business
was that it required only a small amount of initial capital investment,
and we were on track to firmly establish this as a viable business.
The situation changed, however, when prices for end products
plummeted due to escalating competition in the flat-panel TVmarket, leading to a collapse of the supply-demand balance.
Competition heated further as raw materials manufacturers entered
the market. We then faced demands for large cost reductions, which
prevented us from realizing any increases in profits. With noprospects for any improvement, we decided to quickly retreat fromthe PDP optical filter business.
How will this withdrawal from the PDP optical filter business
affect our other new businesses and development projects? I cancertainly say that our approach will be unlike that of the proverb“a burnt child dreads the fire.” In other words, we will not become

F

Overseas Network

Nisshinbo
Automotive Corporation
Nisshinbo Europe B.V.
Nisshinbo Automotive
Manufacturing Inc.
Rane Brake Linings Ltd.
Nisshinbo Somboon
Automotive Co., Ltd.
P.T. Nikawa Textile Industry
P.T. Gistex Nisshinbo Indonesia
P.T. Naigai Shirts Indonesia

is the main focus of the Group’s strategy
Q 4. Whatin its consolidated operations?
believe that a view toward globalization isindispensable. For example, Nisshinbo has
already achieved steady progress in globalizing its Textiles andAutomobile brakes businesses, and these operations now also make ahigh contribution to the consolidated sales and profits of overseas
production bases. Over the next three or four years, I expect
activities carried out under our global structure will become thenexus of our operations. Let me stress, however, that Nisshinbo will
still undertake basic development in Japan and will accumulate a
wealth of solid technologies. I should also point out that promoting
globalization is difficult in some of our businesses such as Papers.
While assessing the situation for such businesses, we will marchforward with our overall globalization.
Another vital element of our Group strategy is the effective
utilization of M&A. As I mentioned before, Nisshinbo has an

I

International Technical Agreements

Saeron Automotive Corporation

Kohbunshi (Thailand) Ltd.

overly cautious and allow a setback to prevent us from moving
forward in other areas. Fortunately, Nisshinbo possesses anabundance of the previously mentioned stock as well as the necessary
strength for undertaking new businesses on an experimental basis.
Accordingly, we remain determined to assume a proactive approachto R&D and business development in the future as well.
Demonstrating this commitment to the future, we will also raise our
R&D expenditures.
In each of the four targeted product fields I alluded to previously,
Nisshinbo is involved from the raw materials stage and is solidly
positioned to easily secure profits. Also, the respective markets for allthese products still have plentiful untapped potential and offer
extremely high growth potential.

Nisshinbo Do Brasil
Industria Textil LTDA.
Mingly Textile (Changzhou) Limited
Hangzhou Yimian Ltd.
Shanghai Choya Fashion Co., Ltd.
Shanghai Kaikai Non-Ironing Garment Co., Ltd.
Ningbo Sunrise Textile Dyeing and Finishing Co., Ltd.
Ningbo Veken Textile Co., Ltd.
Pudong Kohbunshi (Shanghai) Co., Ltd.
Shanghai Sun-Rich Arts & Craft Co., Ltd.
NISSHINBO (SHANGHAI) CO., LTD.
CONTINENTAL TEVES CORPORATION(LIAN YUN GANG) CO., LTD.
SAERON AUTOMOTIVE BEIJING CORPORATION
Shanghai Representative Office

As licensee:• Taltech Limited of the British Virgin Islands for Pucker Free Seam Technology• Continental Teves AG & Co. oHG of Germany for MK60 ABS and ESP TCS
technologies• Meritor Heavy Vehicle Systems, LLC of the U.S. for disc brake and drum braketechnologies
As licensor:• Jiangsu yawei machine tool Co., LTD. of China for CNC turret punch press
technology• Rane Brake Linings Ltd. of India for friction materials technology• Heng Tong Auto Parts Inc. of Taiwan for friction materials and passenger car discbrake technologies
As cross-licensing partners:• TMD Friction Beteiligungs GmbH & Co KG of Germany for friction materials
technology• TRW Inc. of the U.K. for drum brake technology• Continental Teves AG & Co. oHG of Germany for passenger car disc braketechnology• Continental Teves AG & Co. oHG of Germany for NT20/MK20 ABS and TCS
technologies

7Interview with the President

abundance of accumulated stock. In past years, companies could
earn acclaim merely by possessing such stock. Today, even if acompany possesses this stock, without the ability to generate profits,
there is a risk that a company could become an acquisition target.
With this in mind, active and flexible Group management thatincorporates M&A activities is imperative. In my view, M&A istantamount to the concept of “purchasing time.” Undoubtedly, there
are countless occasions when the seeds of a new business being
cultivated will demonstrate tremendous promise but still requiresignificant time before contributing to earnings and neversuccessfully arrive at the commercialization stage even when R&D
progresses smoothly. These seeds eventually end up in the so-called
valley of death. I believe that by using our stock for M&A activities,
we can probably facilitate the establishment of businesses that cangenerate profits quickly.
There are many types of M&A throughout the world. Nisshinbo
will emphasize harmonious M&A that brings mutual benefits andthat is welcomed by the company to be acquired. In other words, our
M&A activities will place high priority on respect for our partner.
this case you describe, would the target of
Q5. InM&A
activities be a company with which you
have built good relationships such as a current
business partner?
n such a case, this would be our basic
approach, since certainly we would
realize synergies. I should stress that we will not limit
our focus to M&A but can also utilize various types ofalliances such as joint businesses and OEM
arrangements. In any industry, however, just when andin what form a significant opportunity will appear isI

Automobile Brakes Business Q&A
Q 1. What are your shares of principal markets in the
Automobile Brakes Business?
We have the number-two share of thedomestic market for friction materials,
corresponding to a 25% market share.

Q 2. What is the strength of your
Automobile Brakes Business?
Nisshinbo’s core technology is in “friction
materials.” There are still untapped
sectors and we intend to accumulate theoutstanding skills of a “master” coveringchemistry and mechanical engineering as
we strive to offer distinctive products.

We have a 20% share for drum brakes,
the third highest share.

Overseas, Nisshinbo has secured large market shares in each region where
it engages in business. We are currently making our utmost efforts to further
expand our market shares for friction materials and brakes. Specifically,
while accurately responding to the requirements of Japanese automakers intheir overseas operations, Nisshinbo aims to expand sales to the U.S. Big
Three as well as to Korean and European automakers. We are targeting ouroverseas sales at such small truck segments as one-ton pickups, for which
there is large demand, as well as focusing on expanding sales in SUVrelated fields.

8

Q 3. Describe your capital
investments in the
Automobile Brakes Business?
To improve quality and strengthen costcompetitiveness, we are currently
progressing with a project for transferring
operations from our Nagoya Plant to our
newly acquired Toyota Plant. We aim tocomplete the move by December 2006.
We will continue to improve stablesupplies and quality as well as
strengthen price competitiveness at the
new plant.

Our brake parts
Toyota Plant

always unknown beforehand. Pursuing synergies only within existing
businesses could lead to the possibility of missing out on otheropportunities. With this in mind, we will maintain a broad
perspective without being overly particular about specific types of
M&A activities.

Q 6.

What will be the key focal points of your global
strategy?
ith the global situation in a constant state offlux, continually fine tuning our short-term
strategies is paramount. Particularly important, however, is thecontinual repetition of earnest business activities over a certain
period of time based on a fundamental policy of establishing a global
optimal production and sales structure from a long-term perspective.
In terms of specific countries, an especially key country in any
global strategy is China, which is becoming the “world’s factory” andhas an enormous consumer market. Undoubtedly, due to recent
events current relations between Japan and China are not at theirbest. However, I have no doubts about the excellent capabilities of
the Chinese people and the strong power of the Chinese economy.
I am absolutely convinced that with the passing of time, mutual
understanding between Japan and China will advance. From Japan’s
perspective, China is our neighbor and I value our relationship withthat country. In the future as well, Nisshinbo will promote joint
business activities with leading local partners in China. I expectthat economic interchange among China, Korea, Japan in the East
Asia region will become increasingly active, but this will require
utmost perseverance.

W

Point 1. We are expanding our sharesfor household papers byoffering distinctive products.

(*Safeguards were being considered at the time of this interview.)

n terms of impact on the Japanese market, thepenetration rate of mainstay overseas cotton
products in Japan is virtually 100% which means there is no further
room for such products to flow into Japan from markets in the
United States or Europe. China is also seeking a breakthrough inthis situation and is adopting flexible measures. Therefore, when
considering the principles of free trade and market economies, I
believe the situation will eventually be resolved. Nisshinbo’s productexports originating in China for shipment to the United States andEurope target high value-added textile market segments. Thus,
safeguards are not likely to have any significant effect on our exports
from China. There are many customers who acclaim the highquality of these products and make offers.
We have factored in some temporary short-term adverse
conditions. From a long-term perspective, we remain strongly
committed to our fundamental course of realizing a global optimal
production and sales structure and believe that by doing so we aresewing the seeds of future growth.

I

you tell us about any specificQ8. Could
achievements resulting from initiatives tochange Nisshinbo’s DNA?
isshinbo’s DNA was molded throughcorporate activities carried out over the courseof 98 years. There are excellent aspects of this DNA that should be
kept intact and parts that need changing. Our success as a leading

N

Point 1. We hold a 15% of the market for
rigid-type polyurethane foam for thecivil engineering and constructionindustries.

COTTON FEEL, ourhousehold paper brand

Point 3. In synthetic papers, we are selling Nisshinbodeveloped inkjet papers and expanding markets in
new fields.
Point 4. Recent promising products are
our environment-friendly
products. Besides our lineup ofhousehold papers and finepapers, we are also developing
and selling products that use
plant-derived plastics as abasic material.

against cotton products imported from China*. What
impact would this have on your business?

Strengthening Our Chemical Products Business

Developing Distinctive Paper Products

Point 2. Nisshinbo is expanding salesof fine papers, mainly suchhigh-grade papers printing as
VENT NOUVEAU and MILT GA.

textiles, there is a movement in the United
Q 7. InStatesand Europe to initiate safeguards

Peachcoat LR series, ourenvironment-friendly products

Point 2. We are expanding thescope of applications for
N’s VIP, focusing on
domestic electriccooling, as well as onrefrigerators,
condensers, fuel cells,
housing heat insulationand LNG tank pipes.

N’s VIP

Point 3. Our watchwords are health and environment. We
are moving toward non-CFC and HCFC rigid-type
polyurethane foam, expanding sales of N’s VIP andincreasing business for low-reformer polyurethane
foam and medical-use electric wheelchairs in healthand long-term medical care-related fields.

9Interview with the President

company in the Japanese spinning industry over many years caused
us to develop a sort of conservative thinking and we became
somewhat arrogant. Therefore, even though we were operating in an
era of rapidly evolving market environments, our DNA made us
reluctant to resort to necessary bold internal restructuring measures,
even when we were saddled with surplus employees and facilities. I
realized that we could not afford to lose any time in reforming ourstructure and that a delay in doing so could cause us to suddenly fall
into difficult circumstances. At this point, I decided to focus on apolicy of selection and concentration and to preserve only thosebusinesses capable of increasing their earnings. In Japan we madeexhaustive efforts to offer distinctive products and raise high valueadded, while overseas we focused on accelerating and expanding ourbusinesses.
I am pleased to report that efforts to reform employee awarenessare finally proceeding and we are raising employee motivation to
encourage employees to meet challenges utilizing the Company’s
stock. In fact, we are now in a situation where we must utilize thisstock. In Textiles, Nisshinbo must distinguish its production plants,
and further rationalization could be necessary depending on thesituation. Overseas, the time is approaching when we must be able
to offer distinctive textile products to ensure continued growth. In
our Automobile Brakes business, a top priority will be establishingbases giving consideration to conditions at various locations. In
Chemical Products, Papers and Other Products as well, we must
increase and strengthen facilities and develop these businesses
overseas with a view to changes in the market environment. We arealso committed to making capital investments for functional
chemical products, solar cell-related products, bipolar plates for fuelcells and electrical double-layer capacitors.
The increase in our profits gives me the sense that our DNA has

Fiscal 2006: Strategies for New Growthin Our Real Estate Leasing Business1. Begin work on a redevelopment plan at our
Nagoya Plant.
2. Promote the use of small- and mediumsized idle assets.
3. Expand the franchise business across a
broad domain through affiliations withGroup company (Nisshinbo Urban
Development Co., Ltd.).

Aeon Okazaki Shopping Center

10changed slightly. Whenever changing times point to a need forreform, I believe my responsibility as president is to carry throughon such reforms.
a long-term perspective, what kind of
Q 9. Fromcompany do you think Nisshinbo should
become in the future? Could you please explain yourvision?
lthough this is a somewhat general vision, I
believe that Nisshinbo must become “acompany with a social presence.” To do so, we must implement
corporate social responsibility (CSR) with utmost honesty. I regard
the most important elements of CSR to be undertaking businessA

Other Product1. Promising businesses in precision instruments• Growth potential in the market for solar power module
manufacturing equipment
In fiscal 2005, worldwide volume of solar module production soared
60% from the previous fiscal year to 1.2GW. Japan has remained theworld’s top producer of solar modules for six consecutive years, withcumulative production volume during this period of 601MW. One of
Nisshinbo’s customers has been the world’s number-one producer ofsolar modules for five years running.

Solar Simulator, solar battery production equipmentproperly, increasing sales and profits and creating benefits to society
through our products.
Since the inauguration of our operations, the notion that “acompany is a public entity” has been firmly woven into our DNA
and is also deeply rooted as an unchanging element of our corporate
culture. This notion has been extremely valuable in carrying out
CSR-based management. I am extremely grateful to mypredecessors for adhering to and putting this notion into practice.
Nisshinbo aims to be a company that is indispensable to society.
We will do so by ensuring that there is no conflict between the
aspects of the Company that cannot be changed, such as engaging inbusiness fairly, and those aspects involving challenge, such as theneed to deploy our stock to generate profits. This is the type ofcompany I wish to see Nisshinbo become. Our specific CSR
initiatives are introduced on page 12.

what message do you have forQ10. Finally,
Nisshinbo’s shareholders and investors?
s I have just explained, the notion that “acompany is a public entity” is deeply ingrainedin the Company. I believe we have a mission to generate profits
through proper business activities and contribute to the benefit of all
stakeholders, including shareholders, customers, business partners,
employees, our management team, local communities, public
institutions, national governments and the global community.
To achieve these objectives, building a long-term profit structure
as a business that can continue to sustain its existence is of utmost
importance. Guided by the theme “co-existence,” we willredistribute our profits from the perspective of balance and nonpartiality to any particular stakeholder. Accordingly, we willA

2. New products under development• Bipolar Plates for Fuel Cells
Features — This product has high strength, flexibility andoutstanding formability and is lightweight and highly corrosionresistant with good conductivity.
Market acclaim — This producthas earned high acclaim andNisshinbo is establishing a position
as the world’s top bipolar plate
manufacturer. We have delivered
these plates to almost all theworld’s manufacturers of fuel cells.
Carbon molded separator (bipolar plate)
Future potential — Companies
are currently competing to develop
automobile- and household-use fuel cells. Although it will take atleast several years for the market to expand, we aim to achieve
profitability in fiscal 2008 and are striving to position our bipolar
plates as the standard product for the industry.

redistribute profits not only to shareholders but also as remuneration
to employees who have made their best efforts to promote thedevelopment of the Company’s business as well as for investments to
replace and increase facilities, undertake R&D and engage in M&A
activities.
In undertaking this fundamental aspect of our operations, wewill strive to build a structure capable of generating increased profits
every fiscal year by tapping the Company’s stock and reward ourshareholders with dividends. I consider annual dividends of ¥10.00
per share, the amount to which we raised dividends in fiscal 2005,
the lowest level of future dividends. Together with employees ofNisshinbo, I will push forward to provide an even greater amount ofdividends in the future.
Taking into consideration the risk of being the target of abuyout, we are considering various corporate defense measures suchas issuing equity warrants and expanding the number of authorizedshares. However, any such measures are meaningless unlessaccompanied by such fundamental activities as making efforts todevelop the Company, increase profits and raise corporate value. I
would like to re-emphasize that we will work to strengthen our
profit structure by undertaking fair business activities.
In closing, I sincerely ask for your understanding of theCompany’ approach and request your continued support andcooperation in the future as well.

Yoshikazu Sashida
President• Functional Chemicals
Establishing a lineup of CARBODILITE (Nisshinbo’s original functional
polymer based on Carbodiimide) and water treatment carrier
products.
Features — A safe compound that has anti-hydrolysis stability.
Fields of application — Electronic material adhesives and bio-based plastic
components (automobiles and others) and water-based paint.
Market evaluation — Earned high acclaim as cross-linking agent that utilizes
the strength of the high functions of plastics.
Growth potential — This is a unique material and there are growing
expectations for plastics. This has the potential
to become a big business. We are aiming for
the world’s number-one position in this fieldand striving to achieve profitability in fiscal
2008.
Capital expenditures — In July 2005, a pilotline with a monthly capacity of 100 tons began
operation at the Tokushima Plant.

Polycarbodiimideresin “Carbodilite”

11Corporate Governance, Risk Management and Environmental
Management—Nisshinbo’s Approach to CSR
Corporate Governance
Undertaking corporate governance with an emphasis on improving profits
for shareholders, Nisshinbo makes efforts to ensure managementtransparency, strengthen its responsibilities for providing explanations,strictly adhere to corporate ethics and make speedy and accurate
management decisions. Nisshinbo operates a surveillance structure thatis centered on the Board of Directors, which was composed of 16
directors at the end of March 2005. Although its framework is simple, thissurveillance system functions effectively, as it enables mutual
deliberations on an array of issues and permits fast and accurate
decision-making.
The Board of Directors convenes monthly and deliberates anddecides matters related to laws, the Articles of Incorporation and mattersprescribed by other internal regulations, while also considering anddeliberating matters related to the execution of management duties. Twointernal auditors and three external auditors attend the meeting of theBoard of Directors throughout the entire duration of the meeting andfreely make suggestions, and ascertain and monitor the execution ofmanagement duties in a timely manner. At the same time, the auditors
perform regular auditing of the Company and its subsidiaries, and further
upgrade auditing.
To augment its corporate governance, Nisshinbo also receives
management advice from advisory lawyers, has entered into contracts
with various certified public accounting offices, and has implemented
strict and fair accounting audits as well.
As an internal auditing organization, Nisshinbo has established the
Auditing Department, which carries out monitoring of internal governanceand cooperates with auditors and certified public accountants in line withefforts to upgrade the effectiveness of operational and accounting audits.
Looking ahead, we also plan to consider types of corporate
surveillance that are global standards. These include, for example, theuse of external directors and the adoption of a Committee System.
However, the introduction of these types of surveillance could also lead toconfusion if not compatible with the actual state of Nisshinbo’s
operations. Therefore, we will give sufficient consideration to and makeappropriate judgments about our future surveillance system.
On a different front, we make utmost efforts to disclose information,
mainly by providing such IR-related published material as notifications ofresolutions and the convening of the Ordinary Meeting of Shareholders,Brief Statement of Financial Results, the Securities Report, Annual
Reports and press releases. This information is also available on the
Company’s home page. At analysts’ meetings as well, the Company
Nisshinbo’s Corporate Governance Structure
Three external auditors
Convenes monthly

Auditors

Cooperation

Two internal auditors

All-day
participation

Cooperation

Board of Directors

Deliberates on urgent matters
Considers and deliberates
on the execution of duties

Accounting auditing

Certified Public AccountantsContracts with three certified
public accounting firms

12Advisory contract withlaw office

AdviceInternal Audit
Department

Cooperation

Advisory lawyers

president makes self-initiated efforts to explain Nisshinbo’s results andpolicies in working to convey information in a smooth manner.
In line with our commitment to thorough compliance, through our
Corporate Conduct Charter, we are working to ensure that corporate
ethics permeate and are firmly planted in the Company and strictly
prescribe the roles of top management. Moreover, our Compliance Action
Guidelines more-specifically express the matters requiring stringent
compliance that are essential in the roles of each manager and regular
employee. At the same time, we are also working to preserve humanrights and ensure thorough compliance with laws through training thatutilizes our easy-to-understand compliance guidelines. Additionally, forthe early detection, correction and prevention of any reoccurrence of
violations of laws and internal regulations, we have inaugurated ourCorporate Ethics Reporting System, a hotline for reporting such violations
internally or externally to the Corporate Ethics Committee.
Recognizing the crucial social responsibilities of companies involvedin the handling of personal information, Nisshinbo has formulated and has
put into practice the Personal Information Protection Charter, while
establishing the positions of information system managers in eachdepartment of the headquarters and office as part of a structure forundertaking monitoring and surveillance of information assets.
Risk Management
Nisshinbo has prescribed its Emergency Situation Response Manual andCrisis Management Policies as its policies for responding to theoccurrence of any emergency (earthquakes, fires, etc.) and has
established a framework for responding quickly to such emergencies.
Nisshinbo is also carrying out activities to prevent occupational
accidents. These include the promotion of safety and hygiene activities
and implementing safety and hygiene surveys at all business sites.
Regarding information systems, Nisshinbo is working to build astructure for computer systems that can be restored quickly after
malfunctioning and that can operate 24 hours per day. These efforts
include storing our mail servers and groupware servers in safe andsecure locations.
Nisshinbo also takes a sincere and thorough approach to managing
and responding to other risks in accordance with its Corporate
Conduct Charter.
Environmental Management
Highly aware that environment management is an extremely crucial
management issue, based on the Nisshinbo Environmental Charter, weare promoting activities to help lower the volume of waste material
generated, and reduce the environment load. In the fiscal year ended
March 31, 2005, we reduced the volume of waste material 0.8% from theprevious fiscal year. Nisshinbo has now attained a 33% reduction in
waste material since the fiscal year ended March 31, 1991, due in part tothe closing of production plants.
We are also making progress in strengthening activities for obtaining
certification for ISO 14001, an international environmental management
system. In December 2004, our Miai Machinery Plant obtained ISO 14001
certification. As a result, all the Company’s business sites, with the
exception of a small plant and office (Harisaki Plant and Nagoya Branch),have now secured this certification.
We are also promoting our environment-related business andproducts in each of our business fields. Examples of these products
include banana fibers made from discarded bananas, materials produced
from recycled PET bottles and recycled paper.
We also disclose information on these activities on our home page.

Review of Operations and Financial Review
Operating Results
During fiscal 2005, ended March 31, 2005, the Japanese economy
moved onto a recovery track, reflecting such factors as a rebound in
corporate earnings in addition to an improved employment
situation. Nevertheless, in the second half of the year uncertainties
emerged regarding the future direction of the economy due toslowing exports caused by a strengthening of the yen and sluggish
personal consumption.
Under these conditions, Nisshinbo worked to attain thetargets of its three-year medium-term management plan basedon the slogan “further strengthening our earnings power andexpanding sales.”Despite such revenue-reducing factors as a slump in domestic
sales in the Textiles segment and the withdrawal from the PDP
optical filter business, consolidated net sales rose 7.3% to ¥243,421
million (US$2,318 million), due in part to the inclusion of newly
consolidated subsidiaries.
Cost of sales rose 5.3% to ¥202,752 million (US$1,931 million),but the cost of sales to net sales ratio declined 1.5 percentage points
to 83.3%. Selling, general and administrative expenses jumped
19.7% to ¥31,018 million (US$295 million). Costs and expenses
increased 7.0% to ¥233,770 million (US$2,226 million). As a result,operating income was up 13.6% to ¥9,651 million (US$92 million).
Thanks to the contribution made by such equity-method
affiliates as Continental Teves Corporation, equity in earnings ofaffiliates rose ¥1,516 million to ¥1,749 million (US$17 million).
During the fiscal year, we recorded a ¥5,279 million (US$50
million) gain on exemption from future pension obligation of thegovernmental program. Also during the fiscal year, gain on sale ofproperty, plant and equipment jumped ¥1,272 million to ¥1,428
million (US$14 million) due to the sale of land for condominiums
and the sale of buildings. Meanwhile, gain on sale of securities
declined ¥921 million to ¥1,634 million (US$16 million). We
recorded amortization of good-will of ¥1,899 million (US$18
million) as a goodwill expense accompanying the acquisition of
CHOYA CORP. Due to the early adoption of impairment
accounting, we booked a ¥2,357 million (US$22 million)
impairment of long lived-assets that included PDP optical filter
production facilities, lease assets at our former Tokyo Plant, welfare
facilities at the Shimada and other plants and idle land assets at ourformer Hamamatsu and other plants.
As a result of the previous developments, we recorded otherincome of ¥3,212 million (US$31 million), a difference of ¥4,927
million from other expenses recorded in the previous fiscal year.
Consequently, income before income taxes and minority interests
rose ¥6,082 million to ¥12,863 million (US$123 million). After
deducting income taxes of ¥5,038 million (US$48 million) andadding minority interests of ¥374 million (US$4 million), net
income in fiscal 2005 soared 109.2% to ¥8,199 million (US$78
million). Net income per share rose ¥21.17 to ¥39.03 (US$0.37).
ROE rose 1.8 percentage points to 3.8%.
Based on the judgment that we are making progress instrengthening our profit structure, Nisshinbo increased cash
dividends per share ¥3.00 to ¥10.00 (US$0.10). Total cash dividends
for the fiscal year amounted to ¥2,076 million (US$20 million).
Taking a long-term perspective, Nisshinbo will continue its policy ofmaintaining stable dividends.

Segment Information

TextilesFiscal 2005 Results• Net sales totaled ¥82,163 million (US$783 million), an increase of 20.1%
from the previous fiscal year.
• Operating income amounted to ¥217 million (US$2 million), down 70.0%.
• The ratio of Textiles sales to total sales increased 3.7 percentage points to33.8%.
• Growth in sales reflected robust results overseas and the conversion of
CHOYA CORP. and Naigai Shirts Co., Ltd. into subsidiaries. However, weak
results by CHOYA led to a decline in operating income.
• Marking the 30th anniversary of its establishment, Nisshinbo Do Brasil
Industria Textil LTDA. achieved record-high net sales and earnings. Also,
P.T. Gistex Nisshinbo Indonesia operated at full capacity throughout theyear and posted record-high net sales.
• The value of textile exports, centering on denim, shirts and uniforms, rose
11% over the previous fiscal year.

Textile consumption in Japan lacked vigor amid an overall harshenvironment throughout the fiscal year stemming from an ongoing
preference for low-priced items as well as sluggish apparel sales due

to irregular weather. Overseas,
the liberalization of textile tradeadvanced along with theabolition of quota limits under a
WTO textile agreement, andinternational competition
further escalated.
Recognizing growing
business opportunities in global
markets, Nisshinbo’s Textiles
segment has made significant
strides in establishing anenvironment for strengthening
the Company’s global
competitiveness. In Japan, we
took an important step to
expand the scope of ourbusiness by converting shirt
apparel companies CHOYA

Our COMFORT PROPOSAL direct marketingbusiness offers high value-added products, suchas those in our prestigious SUPER SOFT line

13

Segment Information
CORP. and Naigai
Shirts Co., Ltd. into
subsidiaries. Overseas,
we moved to expand ourbusiness by taking such
steps as increasing andstrengthening facilities ataffiliated companies.
These initiatives helped
underpin growth in salesof textiles during the
fiscal year. At the profit
level, although overseas
subsidiaries posted
Nanoscience series
higher profits, a slump in
profits by domestic subsidiaries inevitably caused a decrease in
overall operating income.
We recorded a large increase in sales of our healthy, comfortableand environment-friendly products that include NON CARE 100%
cotton wrinkle-free, wash-and-wear shirts; Nanoscience series ofhighly functional materials that incorporate a multitude of functions
such as waterproof, anti-stain, deodorizing and antibacterial
functions; and banana fibers. Additionally, we recorded favorable
domestic shipments and exports of denim, but sales of knit products,
bedding products and spandex declined.
Despite achieving progress in pruning fixed expenses and a risein productivity accompanying increased sales of denim, profits wereeroded by rising raw material costs accompanying soaring prices for
raw cotton and by declining market prices for commercial yarns
amid sluggish domestic demand.
The weak results by CHOYA, which constricted profitability inthis segment, stemmed mainly from a disposal of inventories
accompanying a reevaluation of that company’s brands. By disposingof this inventory, we are confident we have totally eliminated thepast burdens inherited from that company.
In the international area, Nisshinbo’s overseas business recorded

growth in both sales and profits. Indonesia-based P.T. Nikawa
Textile Industry and P.T. Gistex Nisshinbo Indonesia achieved
increases in sales, mainly of high value-added products for Japan,
Europe and the United States. Celebrating the 30th anniversary of
its establishment, Nisshinbo Do Brasil Industria Textil LTDA. also
attained growth in sales and profits.
Looking ahead, the Textiles segment will undertake activities
focused on such principal themes as building production bases in
optimal locations from a global perspective, developing high-quality,
value-added secondary products, progressing with the developmentof environment-friendly products and cultivating overseas markets.

Non-Textiles

Defying initial forecasts of a decline, the volume of domestic
automobile production rose 3% over the previous fiscal year.
Domestic production was supported by exports, overcoming a slight
dip in domestic sales volume. In North America, a slump by the
U.S. Big Three contrasted sharply with the conspicuously rapid
advances of Japanese and Korean automakers, with Japanese
automakers’ share of the North American market surpassing 30% for
the first time.
Under these conditions, Nisshinbo developed competitive
products by establishing its own high-level technologies andstepping up activities for securing orders globally. Nisshinbo
recorded growth in overseas sales mainly to Japanese automakers, aswell as sales to the Big Three, European and Korean automakers. In
the domestic market, we increased new orders for drum brakes andAutomobile Brakes
Fiscal 2005 Results• Net sales of Automobile Brakes amounted to ¥54,306 million (US$517
million), a gain of 4.3% from the previous fiscal year.
• Operating income was ¥6,258 million (US$60 million), a jump of 30.1%.
• The rises in sales and operating income were supported by an increase insales of OES parts for exports and rises in new orders in Japan and growthin sales of overseas subsidiaries.
• We are making steady headway in a project for shifting operations from our
Nagoya Plant to a new plant in Toyota City, with the aim of improving quality
and strengthening cost competitiveness.

14

Nisshinbo Do Brasil Industria Textil LTDA.

Sales of
TextilesOperating Incomeof Textiles(billions of yen)(billions of yen)

100

1.0

75

0.5

50

0

25

-0.5

0

-1.0
’03

’04

’05

’03

’04

’05

An entry at the Annual Nisshinbo Fashion
Contestposted higher orders for spare-part friction materials, mainly forexport. Our overseas subsidiaries in the United States, Thailand andKorea also secured increases in new orders. The overall increases insales and operating income in our overall automobile brakes businesswere the results of efforts to enhance productivity, secure highquality assurance and reduce costs.
Sales of ABS shrank in parallel with the ongoing transfer of thisbusiness to equity-method affiliate Continental Teves Corporation(CTC). However, operating income in the ABS business rose thanks
to increased orders for products with high profit margins. The
transfer of our sensor business to CTC was completed at the end of
March 2005.
Determined to raise quality and profitability in the future andbuild a solid structure for supplying our products, we decided tovacate our Nagoya Plant after two years and purchased the plant ofanother company in Toyota City in Aichi Prefecture to be used as
our new production base. We are now progressing with a project fortransferring production from Nagoya to Toyota City.
In view of the trend toward expansion of overseas production by
Japanese automakers, we will continue to promote globalization of

our operations as a main theme of our business activities. Operatingwith such uncertainties as demands for price reductions andfluctuating prices for raw materials, we will work to maintain or
expand the scope of our business by continuing to achieve increases
in new orders and will promote cost reductions to attain profits.

Paperswhich fuelled increases in sales and operating income in fine papers.
The market for synthetic papers was plagued by overall sluggishness
and an ongoing trend toward low sales prices. Facing thesechallenging conditions, we strived to develop new products and raise
productivity. Despite a decline in sales, these efforts supported anincrease in operating income in synthetic papers.
Sales and operating income for process paper products declined
due to sluggish sales of telegram pasteboard and languishing orders
for labels and card products.
Looking ahead, we will strive to secure profitability in paper
products by expanding sales of our best-performing products in eachcategory and by developing new products. Concurrently, we will
review our sales and manufacturing structure in household papers
and continue with the cultivation of new fields in fine papers andsynthetic papers.

Fiscal 2005 Results• Net sales of Papers amounted to ¥28, 584 million (US$272 million), a
decrease of 1.5%.
• Operating income totaled ¥1,700 million (US$16 million), down 16.0%.
• Favorable sales of household papers and fine papers were unable tocompensate for sluggish orders for synthetic papers and labels and card
products, which led to the decline in total sales of paper products. The
decrease in operating income is attributable to the effects of weak sales
prices for household papers.
• We completed installation and began operating additional facilities at the
Shimada Plant.

In household papers, soaring raw materials prices accompanying
rising crude oil prices, conspired with declining sales prices due tointensifying industry competition to create harsh businessconditions. Nonetheless, this division achieved an increase in sales ofhousehold papers, as it focused on expanding sales of such
distinctive products as COTTON FEEL and SHOWER ROLL. In
contrast, the significant effect of sluggish market prices caused a
decline in operating profit in household papers.
Regarding fine papers,
there has been shrinking
demand for traditional-type
products with colors andpatterns. Nevertheless, we
focused mainly on
expanding sales of suchhigh-quality printing papers
as VENT NOUVEAU,MILT GA, and ARABEIL,
Our household paper products

Sales of
Automobile
BrakesOperating Incomeof Automobile
Brakes(billions of yen)(billions of yen)

80

8.0

60

6.0

40

4.0

20

2.0

0

0
’03

Our brake parts

’04

’05

’03

’04

’05

Sales of
PapersOperating Incomeof Papers(billions of yen)(billions of yen)

40

2.4

30

1.8

20

1.2

10

0.6

0

0
’03

’04

’05

’03

’04

’05

15

Segment Information

Chemical Products
Fiscal 2005 Results• Net sales of Chemical Products rose 6.5%, to ¥34,199 million (US$326
million).
• Operating income jumped 34.5% to ¥822 million (US$8 million).
• An increase in sales of plastic molded products, including those of overseas
subsidiaries, compensated for sluggishness in polyurethane foams andelastomers, and supported the increase in overall sales and operating
income.
• Iwao & Co., Ltd. entered the construction materials business and will begin
full-fledged operations from fiscal 2006.

Despite some signs of recovery in the civil engineering andconstruction industries, which are primary sources of demand, wefaced continued difficult conditions in polyurethane foam products,
as prices for raw materials continued rising throughout the entire
fiscal year. We focused on expanding sales of our mainstay
polyurethane foam basic liquid and increased sales of rigid-type
polyurethane foam. Conversely, we recorded lower sales of soft-type
polyurethane foams, including JR seats (seats used in railway cars);
N’s VIP vacuum heat insulation panels, a newly development
product; and elastomers, which faced intensifying competition fromoverseas products.
Business results in carbon products improved, reflecting a pickup
in conditions in the IT market.
Iwao & Co., Ltd., a subsidiary, worked to expand sales in ITrelated fields and recorded increases in sales and operating income.
During fiscal 2005, Iwao took over the construction materials
business from Kanebo Chemical Industries, Ltd., and in April 2005

Real Estate Leasing
Fiscal 2005 Results• Net sales in Real Estate Leasing edged up 0.1% to ¥4,945 million (US$47
million).
• Operating income increased 4.7% to ¥2,736 million (US$26 million).
• Despite a decline in a portion of sales due to the selling of some of ourcondominiums, the addition of new lease properties led to slight growth insales and the rise in operating income.
• We leased the grounds of our former Notogawa Plant to Kahma Co., Ltd.
and opened a franchise outlet at idle land at our Kawagoe Plant.

In the real estate market during fiscal 2005, land prices in some
central city areas began rising, but overall land prices continued totrend downward.
Thanks to vigorous efforts to secure lease income, we recorded
favorable results in business for leasing Company-owned land andcommercial facilities, including shopping centers. In new landleasing business, we leased a portion of land at our former Notogawa
Plant to a home center and opened a franchise outlet at idle landat our Kawagoe Plant, which helped support an increase inoperating profit.
16

was authorized to participate in bidding for public works projects, as
this company now begins full-scale business operations.
We recorded sharp growth in sales and operating profit inmolded plastic products. A rebound in business results in Japan was
supported by hot weather in the first half of the fiscal year. Despite
rising prices for raw materials, our subsidiaries posted growth inshipments to Europe and received orders for products forautomobile assembly. The solid performance by molded plastic
products contributed to the overall increase in sales and operating
profit in Chemical Products.
Despite uncertainties about a recovery in market conditions, wewill work to develop new applications such as vacuum heatinsulation panels, increase sales in our core business of basic liquids
and expand our overseas business.

Sales ofChemical
Products

Our polyurethane foams for heat insulation
in a large scale project

Operating Incomeof Chemical
Products(billions of yen)(billions of yen)

40

1.00

30

0.75

20

0.50

10

0.25

0

0
’03

’04

’05

’03

’04

’05

Looking ahead, although we expect a temporary decline in net
sales due to the sale of small-scale condominiums for lease and thecompletion of existing lease contracts accompanying theredevelopment of our former Tokyo Plant, we will steadily progresswith the utilization of our idle land and various redevelopment
plans, as we effectively utilize Nisshinbo’s assets.

Sales ofReal Estate
Leasing

Kahma Home Center in Notogawa(Shiga Prefecture, Japan)

Operating Incomeof Real Estate
Leasing(billions of yen)(billions of yen)

6.0

3.00

4.5

2.25

3.0

1.50

1.5

0.75

0

0
’03

’04

’05

’03

’04

’05

Other Products
Fiscal 2005 Results• Net sales of Other Products amounted to ¥39,222 million (US$374 million), a
decline of 2.8%.
• An operating loss of ¥865 million (US$8 million) was recorded, ¥292 million
less than in the previous year.
• The decline in sales resulted from our withdrawal from the PDP optical filter
business. The improvement in the operating loss reflected favorable resultsin our precision instruments business and the attainment of profitability in
our electronic devices business.
• In functional chemicals business, we constructed a new plant for mass
production of CARBODILITE at our Tokushima Plant.

Precision Instrument BusinessSupported by a recovery in the domestic economy, we recorded
increases in sales and operating income in our mechatronics products
business owing to increased orders for such mainstay products asprecision processed parts for automobiles, various types ofmachinery for automobile production lines and solar module related
facilities. We also developed new products such as new LCD panel
production equipment, provided technologies for sheet metal
processing facilities to a Chinese company and achieved solid resultsin developing products and cultivating markets.

Solar Module Laminator, solar battery production equipment

Sales of
Other Products

Operating Incomeof Other Products(billions of yen)(billions of yen)

50

1

Others• Bipolar Plates for Fuel Cells
We began supplying bipolar plates for fuel cells along with thecommencement of sales of household-use fuel cells by energy
companies. However, the full-fledged diffusion of fuel cells inindustry appears to be lagging and companies are currently
competing to develop automobile-use and household-use fuel cells.
Accordingly, fuel cells have yet to contribute to our business results.
In bipolar plates for fuel cells, we are striving to develop a solid
position within the industry by focusing on customer responses toour trial products and raising development speed.
• Functional Chemical Products
Our CARBODILITE plastic improvement agent and our water
treatment carriers are ecology-related products, and we are working
toward full-scale commercialization. CARBODILITE isexperiencing growing demand and has earned high acclaim for its
outstanding safety and environmental properties. To establish a
structure for mass production, we constructed a new plant at ourTokushima Plant, and we plan to commence full-scale production
from 2006. To accelerate commercialization, we will launch the
Performance Chemical Department in 2006.
• Electronic Devices
Ueda Japan Radio Co., Ltd., a subsidiary, engages in the electronic
device business that includes the manufacture of radio
communications equipment. Overcoming falling sales prices, Ueda
Japan Radio achieved higher sales in fiscal 2005 thanks to favorable
conditions in IT-related industries. Ueda Japan Radio recorded
growth in operating income owing to cost reductions.
• Color Systems
We continuously undertake two projects in this business:distinguishing our computer color matching (CCM) systems andpackaging our business systems. In fiscal 2005, severe market
conditions and mounting competition prevented this business fromachieving an improvement in results.
• PDP Optical Filters
Intensifying competition in the flat-panel TV industry sparked
increasingly stringent demands for price reductions. At the sametime, competition among filter manufacturers also mounted due tothe market entry of raw materials manufacturers. Foreseeing noprospects for improved earnings, we ceased production of PDP
optical filters at the end of March 2005 and withdrew fromthis business.

40
0

30
-1
20

-2
10

0

-3
’03

’04

’05

’03

’04

’05

Hyper CHOSHOKU SENKA X Series, computer
color matching system

17Financial Position
Total assets at the end of fiscal 2005 amounted to ¥370,168 million(US$3,525 million), a 0.5% increase from the previous fiscal yearend. Current assets rose 1.4% to ¥142,586 million (US$1,358
million). Among current assets, cash and cash equivalents rose
because of an increase in net income. On the other hand, inventories
and receivables declined.
Property, plant and equipment declined 3.1% to ¥99,781 million(US$950 million) due to the early adoption of impairment
accounting for long-lived assets. Investments and other assets rose
2.4% to ¥127,801 million (US$1,217 million) due to an upward
revaluation of investment securities accompanying buoyant stock
markets along with an increase in investments in and advances tounconsolidated subsidiaries and affiliates.
On the liabilities side, current liabilities declined 3.4% to¥80,323 million (US$765 million). Although short-term bank loansrose as a result of the inclusion of the portion of such loans to
CHOYA, current liabilities declined because of a drop in payables
and a decrease in employees’ savings deposits resulting from theabolition of an employee savings system at Nisshinbo, the parent
company. Long-term liabilities declined 6.8% to ¥61,564 million(US$586 million). Although deferred tax liabilities rose along withan increase in an upward revaluation of marketable securities, longterm liabilities decreased because of a decline in accrued severance
benefits accompanying the return of the proxy portion of theemployee pension fund. Total liabilities declined 4.9% to ¥141,887
million (US$1,351 million).
Shareholders’ equity rose 4.0% to ¥222,771 million (US$2,122
million). The shareholders’ equity ratio edged up 2.1 percentage
points to 60.2%. Shareholders’ equity per share rose ¥41.56 to¥1,072.54 (US$10.21).

Cash Flows
Cash flows from operating activities
In cash flows from operating activities, Nisshinbo recorded suchcash inflows as ¥12,863 million (US$123 million) in income before
income taxes and minority interests, ¥11,046 million (US$105
million) in depreciation and amortization and ¥2,357 million(US$22 million) in impairment of long lived-assets. On the other
hand, cash outflows included ¥5,279 million (US$50 million) in
gain on exemption from future pension obligation of thegovernmental program. As a result, net cash provided by operating
activities amounted to ¥14,116 million (US$134 million).

Cash flows from investing activities
Net cash used in investing activities amounted to ¥3,834 million(US$37 million), consisting mainly of such cash outflows as ¥12,213
million (US$116 million) for payment for purchase of property,
plant and equipment as well as ¥4,574 million (US$44 million) for
payment for purchase of investment securities and investments inand advances to unconsolidated subsidiaries and affiliates as well as
cash inflows that included ¥5,105 million (US$49 million) fromproceeds from sale of investment securities and investments inadvances to unconsolidated subsidiaries and affiliates and ¥4,417
million (US$42 million) in proceeds from sale of property, plant andequipment.

18

Cash flows from financing activities
Net cash used in financing activities amounted to ¥471 million(US$4 million), mainly reflecting such inflows as ¥5,783 million(US$55 million) in proceeds from issuance of long-term debt and¥500 million (US$5 million) in proceeds from issuance of new stock
as well as such outflows as ¥1,453 million (US$14 million) in cash
dividends paid and ¥5,655 million (US$54 million) for repayment oflong-term debt).

Cash and cash equivalents at end of year rose ¥9,893 million fromthe end of the previous fiscal year to ¥31,680 million (US$302
million).

Six-year Summary(millions of yen)

Net Sales
Operating Income
Net Income
Shareholders’ Equity
Total Assets
Shareholders’ Equity Ratio (%)
Return on Assets (%)
Return on Equity (%)
Capital Investment
Depreciation and Amortization
Common Shares Issued

2000

2001

2002

2003

2004

2005

227,452
4,140
2,648
194,685
339,373
57.4
0.8
1.3
23,232
14,228233,535
5,751
517
192,331
334,460
57.5
0.2
0.3
17,093
13,134

225,836
3,968-2,649213,665
364,161
58.7
-0.8
-1.3
13,243
13,422

231,193
5,989
777
186,028
312,909
59.5
0.2
0.4
9,057
12,758226,883
8,496
3,919
214,132
368,444
58.1
1.2
2.0
8,989
11,776

243,4219,651
8,199
222,771
370,168
60.2
2.2
3.8
12,50011,000227,443,939 221,743,939 216,580,939 216,580,939 216,580,939 208,198,939

Per Share (in yen):
Net Income
Shareholders’ Equity
Cash Dividends

11.36
857.057.00

2.32
868.497.00-12.03988.027.00

3.18
860.52
7.00

17.86
1,030.98
7.00

39.03
1,072.54
10.00

Number of Employees

8,235

8,104

8,456

8,627

9,875

9,505

Operating Income

Total Assets(billions of yen)(billions of yen)

Shareholders’Equity Ratio

Return on Equity
(%)

(%)

10

400

80

300

60

4.0

8

2.0
6
200

40

100

20

4

0.0
2

0

0
’00 ’01 ’02 ’03 ’04 ’05

Capital Investment-2.0

0’00 ’01 ’02 ’03 ’04 ’05(billions of yen)

Depreciation andAmortization

25

15’00 ’01 ’02 ’03 ’04 ’05

Net Income per Share(yen)(billions of yen)

’00 ’01 ’02 ’03 ’04 ’05

Shareholders’Equity per Share
(yen)

40

1,200
1,000

20
10

20

800

15
600
10
5

0

400

5

200
0

0
’00 ’01 ’02 ’03 ’04 ’05-20’00 ’01 ’02 ’03 ’04 ’05

0’00 ’01 ’02 ’03 ’04 ’05’00 ’01 ’02 ’03 ’04 ’05
19

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Balance Sheets
31st March, 2005 and 2004ASSETS(millions of yen)
2004

2005

(thousands of
US dollars)(Note 1)
2005

Current assets:
Cash and cash equivalents.............................................................................
Time deposits................................................................................................
Marketable securities (Note 4) ......................................................................
Receivables
Notes receivable, trade ..............................................................................
Accounts receivable, trade .........................................................................
Unconsolidated subsidiaries and affiliates .................................................
Other.........................................................................................................
Less allowance for doubtful accounts ........................................................
Inventories (Note 3)......................................................................................
Deferred tax assets (Note 7) ..........................................................................
Other current assets ......................................................................................
Total current assets................................................................................

Property, plant and equipment:
Land..............................................................................................................
Buildings and structures ................................................................................
Machinery, equipment and tools...................................................................
Construction in progress ...............................................................................
Less accumulated depreciation......................................................................

Investments and other assets:
Investment securities (Note 4) ......................................................................
Investments in and advances to unconsolidated
subsidiaries and affiliates ...........................................................................
Deferred tax assets (Note 7) ..........................................................................
Intangibles.....................................................................................................
Other.............................................................................................................

See Notes to Consolidated Financial Statements.

20

21,7876,012
656$ 301,714
31,733
9,162

13,16943,762
4,980
294
62,205(804)
61,401
41,624
1,922
1,665
142,586

13,45846,465
5,897
695
66,515(980)
65,535
43,117
1,984
1,542
140,633

125,419
416,781
47,4292,800
592,429(7,657)584,772
396,419
18,30515,857
1,357,962

19,80599,493
190,316
1,930
311,544(211,763)
99,781

18,723103,247
191,140
1,727
314,837(211,834)
103,003

188,619
947,552
1,812,533
18,381
2,967,085(2,016,790)
950,295

117,410

115,162

1,118,191

7,601
100
465
2,225
127,801¥ 370,168

4,930
254
1,920
2,542
124,808¥ 368,444

72,390952
4,429
21,191
1,217,153$3,525,410¥

31,680
3,332
962

¥

(thousands of
US dollars)(Note 1)

LIABILITIES AND SHAREHOLDERS’ EQUITY(millions of yen)
2004

2005

Current liabilities:
Short-term bank loans (Note 5)....................................................................
Current portion of long-term debt (Note 5) .................................................
PayablesNotes and accounts payable, trade ............................................................
Unconsolidated subsidiaries and affiliates.................................................
Other ........................................................................................................
Employees’ savings deposits ..........................................................................
Accrued expenses ..........................................................................................
Accrued income taxes....................................................................................
Other current liabilities .................................................................................
Total current liabilities.........................................................................
Long-term liabilities:
Long-term debt (Note 5) ..............................................................................
Accrued severance benefits (Note 6) .............................................................
Deferred tax liabilities (Note 7).....................................................................
Other long-term liabilities ............................................................................

Minority interests in consolidated subsidiaries................................................................

37,7082,416$ 363,762
21,81924,744555
4,883
30,182
267
3,970
3,454
1,964
80,323

26,521451
4,386
31,358
3,534
3,753
1,697
2,686
83,152

235,657
5,286
46,505
287,448
2,543
37,80932,89518,705764,981

9,909
15,60427,5198,532
61,5649,820
22,54225,925
7,804
66,091

94,371
148,610262,086
81,257586,324

5,510

5,069

52,476

27,58820,447
135,447
42,691(3,040)27,58820,401
133,757
41,194(3,582)

262,743
194,733
1,289,971
406,581(28,952)(362)
222,771¥ 370,168(5,226)214,132¥ 368,444(3,447)
2,121,629$3,525,410¥

38,195
2,291

¥

2005

Commitments and contingencies (Note 12)
Shareholders’ equity (Notes 10 and 13):
Common stock:
Authorized2005 — 371,755,000 shares
2004 — 380,137,000 shares
Issued2005 — 208,198,939 shares
2004 — 216,580,939 shares .................................................................
Capital surplus ..............................................................................................
Retained earnings..........................................................................................
Net unrealized gain on available-for-sale securities.......................................
Foreign currency translation adjustments.......................................................
Less shares in treasury
2005 —
585,279 shares
2004 — 8,965,904 shares.................................................................

21

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Income
Years ended 31st March, 2005 and 2004

(thousands of
US dollars)(Note 1)(millions of yen)

Net sales ....................................................................................................................................

2005

2004

2005

¥ 243,421¥ 226,883$ 2,318,295

202,752
31,018
233,770

192,480
25,907
218,387

1,930,971
295,4102,226,381

9,651

8,496

91,914

1,632
(981)
1,749
812
3,212

1,530
(1,007)233(2,471)(1,715)

15,543(9,342)
16,657
7,733
30,591

12,863

6,781

122,505

4,060
978
5,038

1,929
878
2,807

38,667
9,314
47,981

7,825
374
8,199

3,974
(55)
3,919 $

74,524
3,562
78,086

Costs and expenses:
Cost of sales ..................................................................................................
Selling, general and administrative expenses.................................................

Operating income ....................................................................................................................
Other income (expenses):
Interest and dividend income........................................................................
Interest expenses ...........................................................................................
Equity in earnings of affiliates.......................................................................
Other, net (Note 11) .....................................................................................

Income before income taxes and minority interests.......................................................
Income taxes (Note 7)
Current..........................................................................................................
Deferred ........................................................................................................

Income before minority interests.........................................................................................
Minority interests in net income...........................................................................................
Net income ................................................................................................................................

¥

¥

(yen)

(US dollars)

Per share:
Net income....................................................................................................
Cash dividends ..............................................................................................

See Notes to Consolidated Financial Statements.

22

¥

39.03
10.00

¥

17.86
7.00

$

0.37
0.10

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Shareholders’ Equity
Years ended 31st March, 2005 and 2004

(millions of yen)
2004

2005

(thousands of
US dollars)(Note 1)
2005

Common stock:
Balance at beginning of year
(2005 and 2004 — 216,580,939 shares)....................................................
Balance at end of year
(2005 — 208,198,939 shares; 2004 — 216,580,939 shares) .....................

¥

27,588¥27,588$ 262,743¥

27,588¥27,588$ 262,743¥

20,401
46
20,447¥

20,401—
20,401$ 194,295
438$ 194,733¥ 133,757¥ 131,531$1,273,876—
8,199(1,453)(94)(4,946)(16)¥ 135,447

(92)
3,919
(1,512)(89)——¥ 133,757—
78,086(13,838)(895)(47,105)(153)$1,289,971¥

41,194
1,497
42,691¥

9,628
31,566
41,194$ 392,324
14,257$ 406,581(3,582)542(3,040)¥(2,921)(661)(3,582)$ (34,114)
5,162$ (28,952)(5,226)
(115)
4,979
(362)

¥

(199)
(5,027)—(5,226)$ (49,771)(1,095)47,419$ (3,447)

Capital surplus:
Balance at beginning of year .........................................................................
Gain on sale of treasury stock........................................................................
Balance at end of year ...................................................................................
Retained earnings:
Balance at beginning of year .........................................................................
Adjustments due to decrease in a subsidiary of
an affiliate accounted for by the equity method ........................................
Net income....................................................................................................
Cash dividends ..............................................................................................
Directors’ and statutory auditors’ bonuses .....................................................
Retirement of treasury stock .........................................................................
Other.............................................................................................................
Balance at end of year ...................................................................................
Net unrealized gain on available-for-sale securities:
Balance at beginning of year .........................................................................
Net changes...................................................................................................
Balance at end of year ...................................................................................
Foreign currency translation adjustments:
Balance at beginning of year .........................................................................
Net changes...................................................................................................
Balance at end of year ...................................................................................
Treasury stock at cost:
Balance at beginning of year .........................................................................
Add: acquired................................................................................................
Deduct: sold and retirement..........................................................................
Balance at end of year ...................................................................................

¥

¥

¥
¥

¥

¥

¥

¥

¥

¥

See Notes to Consolidated Financial Statements.

23

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
Years ended 31st March, 2005 and 2004

(millions of yen)
2004

2005

Cash flows from operating activities:
Income before income taxes and minority interests .................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Income taxes-paid ...........................................................................................
Depreciation and amortization........................................................................
Impairment of long lived-assets ......................................................................
Amortization of good-will...............................................................................
Equity in earnings of affiliates .........................................................................
Provision for doubtful receivables....................................................................
Provision for accrued pension and severance benefits......................................
Payment of accrued pension and severance benefits ........................................
Gain or exemption from future pension obligation of thegovernmental program ................................................................................
Directors’ and statutory auditors’ bonuses paid ...............................................
Gain on sale of property, plant and equipment ...............................................
Gain on sale of investment securities and investments inand advances to unconsolidated subsidiaries and affiliates ..........................
Write-down of investment securities...............................................................
Loss on plant closures......................................................................................
Other...............................................................................................................
Changes in operating assets and liabilities:
Receivables ......................................................................................................
Inventories.......................................................................................................
Payables ...........................................................................................................
Other...............................................................................................................
Net cash provided by operating activities........................................

2005

6,781

$ 122,505(2,309)11,0462,357
1,899(1,749)(756)
2,969(4,628)(4,091)
11,776
—
7
(233)
399
4,422
(6,384)(21,990)105,200
22,44818,086(16,657)(7,200)28,276(44,076)(5,279)(98)(1,428)

—
(96)
(156)

(50,276)(934)(13,600)(1,634)
93
770
(191)

(2,555)
10
879
(425)

(15,562)886
7,333(1,819)

4,283
1,478
(1,460)(4,110)
14,116(532)(1,277)
1,282
(896)
8,911

40,79014,076(13,905)(39,143)
134,438

4,417

921

42,067

5,105(12,213)

5,445(8,674)

48,619(116,314)(4,574)63
2,991(2,209)
(295)
(190)

(43,562)600
28,486—377(3,834)663
261(4,078)—3,590(36,514)

Cash flows from financing activities:
Proceeds from issuance of long-term debt...............................................................
Repayment of long-term debt..................................................................................
Proceed frame issuance of new stock .......................................................................
Decrease in short-term bank loans ..........................................................................
Cash dividends paid.................................................................................................
Payment for purchase of treasury stock....................................................................
Other .......................................................................................................................
Net cash used in financing activities ...............................................

5,783(5,655)500
426(1,453)
(115)
43
(471)

2,106
(2,973)—(5,043)(1,512)(5,027)(37)(12,486)

55,076(53,857)
4,762
4,057
(13,838)(1,095)409(4,486)

Effect of exchange rate changes on cash .........................................................................
Net increase (decrease) in cash and cash equivalents ..................................................
Cash and cash equivalents at beginning of year .............................................................

82
9,893
21,787(83)(7,736)29,523781
94,219207,495

21,787$ 301,714¥

Cash flows from investing activities:
Proceeds from sale of property, plant and equipment..............................................
Proceeds from sale of investment securities and investments
in and advances to unconsolidated subsidiaries and affiliates ..............................
Payment for purchase of property, plant and equipment .........................................
Payment for purchase of investment securities andinvestments in and advances to unconsolidated subsidiaries and affiliates...........
(Increase) decrease in loans receivable .....................................................................
(Increase) decrease in time deposits .........................................................................
Cash acquired from newly consolidated subsidiaries,
net of payment for purchase of companies
Other, net ................................................................................................................
Net cash used in investing activities................................................

Cash and cash equivalents at end of year.........................................................................

See Notes to Consolidated Financial Statements.

24¥

12,86331,680¥(thousands of
US dollars)(Note 1)¥

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
1. BASIS OF PRESENTING FINANCIAL STATEMENTS:
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities
and Exchange Law and its related accounting regulations, and in conformity with accounting principles and practices generally accepted inJapan, which are different in certain respects as to application and disclosure requirements of International Accounting Standards. The
consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance withaccounting principles and practices generally accepted in countries and jurisdictions other than Japan.
In addition, the accompanying footnotes include information which is not required under generally accepted accounting principles andpractices in Japan but is presented herein as additional information.
The United States dollar ($) amounts included herein are given solely for convenience and are stated, as a matter of arithmetical computation
only, at the rate of ¥105 = $1, the approximate exchange rate at 31st March, 2005. The translations should not be construed as representations
that the Japanese yen amounts have been, could have been, or could in the future be, converted into United States dollars.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(a) Consolidation
The consolidated financial statements include the accounts of Nisshinbo Industries, Inc. (the “Company”) and its significant subsidiaries(together, the “Group”).
Under the control or influence concept, those companies in which the Parent, directly or indirectly, is able to exercise control over
operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted forby the equity method.
Investments in unconsolidated subsidiaries and associated companies are accounted for by the equity method.
Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting
had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets
resulting from transactions within the Group is eliminated.
(b) Foreign currency transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at theexchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the income statement to theextent that they are not hedged by forward exchange contracts.
Investments in and advances to unconsolidated subsidiaries and affiliates in foreign currencies are translated at the historical rates effectiveat the dates of transaction from which such accounts were originated.
(c) Foreign currency financial statements
The balance sheet accounts, revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at thecurrent exchange rate as of the balance sheet date except for shareholders’ equity, which is translated at the historical rate.
(d) Cash equivalents
Cash equivalents include time deposits which mature or become due within six months of the date of acquisition.
(e) Marketable and investment securities
Marketable and investment securities classified as available-for-sale securities are reported at fair value, with unrealized gain and losses, netof applicable taxes, reported in a separate component of shareholders’ equity.
(f) Inventories
Inventories are stated principally at the lower of cost or market, cost being substantially determined by the average cost method.
(g) Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed principally on the declining balance method over their estimateduseful lives.
(h) Retirement and pension plans
Under the employees’ retirement plans for the Company and certain consolidated subsidiaries, the annual provision for retirement benefits
is calculated to state the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date.
Retirement benefits to directors and corporate auditors are provided at the amount which would be required if all directors and corporate
auditors retired at the balance sheet date.
(i) Income taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset andliability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to thetemporary differences.
(j) Derivative financial instruments
The Group uses a variety of derivative financial instruments, including foreign currency forward contracts and interest rate swaps as a meansof hedging exposure to foreign currency and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.
25

The foreign currency forward contracts are utilized to hedge foreign currency exposures in procurement of raw materials from overseas suppliers.
Trade payables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.
Interest rate swaps are utilized to hedge interest rate exposures of long-term debt. These swaps which qualify for hedge accounting and meet
specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements are recognized
and included in interest expense or income.
(k) Adoption of new accounting standard
A new accounting standard for the impairment or disposal of the long-lived assets is effective for the fiscal years beginning after 1st April,
2005. The group elected early adoption of the above accounting standard for the current year.
3. INVENTORIES:
Inventories at 31st March, 2005 and 2004 were as follows:(thousands of
US dollars)(millions of yen)
2005

Finished products .........................................................................................................................
Work in process ............................................................................................................................
Materials and supplies...................................................................................................................

¥

¥

2004

25,001
7,396
9,227
41,624¥¥

2005

25,756
7,082
10,27943,117$ 238,105
70,43887,876$ 396,419

4. MARKETABLE AND INVESTMENT SECURITIES:The carrying amounts and aggregate fair value of securities available-for-sale included in marketable and investment securities at 31st March,2005 and 2004 were as follows:(thousands of
US dollars)(millions of yen)
2005

Cost ..........................................................................................................................................
Unrealized gains........................................................................................................................
Unrealized losses .......................................................................................................................
Fair value ..................................................................................................................................

¥

36,01072,397(23)¥ 108,384

2004

2005

37,71270,324(276)¥ 107,760$ 342,953
689,495(219)$1,032,229¥

5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT:
The annual interest rates applicable to the short-term bank loans at 31st March, 2005 and 2004 were 0.6% to 8.8%.
Long-term debt at 31st March, 2005 and 2004 consisted of the following:(thousands of
US dollars)(millions of yen)
2004

2005

Long-term debt with collateral:
Loans from banks maturing serially to 2010, ranging from 1.7% to 4.8% ................................
2.4% bonds due in 2007............................................................................................................
Long-term debt without collateral:
Loans from banks maturing serially to 2016, ranging from 1.2% to 7.0% ................................

¥

Capital lease obligations, due through 2010 .............................................................................
Less current portion......................................................................................................................
¥

1,399
—

¥

2005

2,669
1,000

$

13,324
—

4,251

3,082

40,4856,550
12,200(2,291)
9,909

5,485
12,236(2,416)
9,820

62,381
116,190(21,819)$ 94,371¥

Annual maturities of long-term debt were as follows:Year ending 31st March,
2006 ......................................................................................................................................
2007 ......................................................................................................................................
2008 ......................................................................................................................................
2009.....................................................................................................................................................
2010 and thereafter ...............................................................................................................

(millions of yen)

¥

¥

26

2,291
3,656
3,294
2,274
685
12,200(thousands of US dollars)$

21,81934,81931,371
21,657
6,524$ 116,190

At 31st March, 2005 and 2004, net book value of assets pledged as collateral for short-term bank loans and long-term debt were as follows:(thousands of
US dollars)(millions of yen)
2005

Property, plant and equipment .....................................................................................................
Notes receivable, trade ..................................................................................................................

¥

Inventories.............................................................................................................................................
¥

2004

7,682
—
—
7,682

¥

¥

2005

8,914
21
2,018
10,953$$73,162——
73,162

6. RETIREMENT AND PENSION PLANS:
Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay
at termination, years of service and certain other factors.
The Company and certain domestic subsidiaries have two types of pension plans for employees; a non-contributory and a contributory funded
defined benefit pension plan. The contributory funded defined benefit pension plan, which is established under the Japanese Welfare Pension
Insurance Law, covers a substitutional portion of the governmental pension program managed by the Company on behalf of the government
and a corporate portion established at the discretion of the Company. According to the enactment of the Defined Benefit Pension Plan Law
in April 2002, the Company applied for an exemption from obligation to pay benefits for future employee services related to the substitutional
portion which would result in the transfer of the pension obligations and related assets to the government. The Company obtained an approvalof exemption from future obligation by the Ministry of Health, Labor and Welfare on 1st April, 2004.
As a result of this exemption, the Company and certain subsidiaries recognized a gain on exemption from future pension obligation of thegovernmental program in the amount of ¥5,278 million in accordance with a transitional measurement of the accounting standard for employees’ retirement benefits.
The liability for retirement benefits for directors and corporate auditors at 31st March, 2005 and 2004 were ¥567 million ($5,400 thousand)and ¥698 million. The retirement benefits for directors and corporate auditors are paid subject to the approval of the shareholders.
The liability for employees’ retirement benefits at 31st March, 2005 and 2004 consisted of the following:(thousands of
US dollars)(millions of yen)
2005

Projected benefit obligation ..................................................................................................
Fair value of plan assets ....................................................................................................................
Unrecognized prior service cost ............................................................................................
Unrecognized actuarial loss...................................................................................................
Unrecognized transitional obligation ....................................................................................
Net liability .......................................................................................................................

2004

¥

34,971(17,158)
17,813
3,211(5,701)(286)¥ 15,037

¥

¥

2005

65,163(33,040)
32,123
2,663(12,542)(400)
21,844$ 333,057(163,409)
169,648
30,581(54,295)(2,724)$ 143,210

The components of net periodic benefit costs for the years ended 31st March, 2005 and 2004 were as follows:(thousands of
US dollars)(millions of yen)
2005

Service cost............................................................................................................................
Interest cost...........................................................................................................................
Expected return on plan assets ..............................................................................................
Amortization of prior service cost .........................................................................................
Recognized actuarial loss ......................................................................................................
Amortization of transitional obligation.................................................................................
Net periodic benefit costs..................................................................................................

¥

¥

2004

1,827
910
(262)
(230)
515
57
2,817

¥

¥

2005

1,878
1,653
(531)
(203)
1,416
57
4,270

$

$

17,4008,667(2,495)(2,191)
4,905
543
26,829Assumptions used for the years ended 31st March, 2005 and 2004 were set forth as follows:
Discount rate................................................................................................................................
Expected rate of return on plan assets..........................................................................................
Amortization period of prior service cost .....................................................................................
Recognition period of actuarial gain / loss ...................................................................................
Amortization period of transitional obligation.............................................................................

2005

2004

2.0%~2.5%
0.5%~4.0%
10~15 years
10~15 years
10 years

2.0%~2.5%
0.0%~4.0%
10~15 years
10~15 years
10 years27

7. INCOME TAXES:
The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities at 31st March,2005 and 2004 were as follows:(thousands of
US dollars)(millions of yen)
2005

Deferred tax assets:
Inventories ............................................................................................................................
Tax loss carryforwards...........................................................................................................
Allowance for doubtful accounts...........................................................................................
Accrued employees’ bonuses .................................................................................................
Accrued severance benefits....................................................................................................
Impairment of long lived-assets ............................................................................................
Other ....................................................................................................................................
Less valuation allowance .......................................................................................................

632
6,094
152
894
7,498
876
1,889
(8,259)9,776¥¥ (29,423)(4,536)(1,314)¥ (35,273)¥¥ (25,497)¥¥

Deferred tax liabilities:
Unrealized gain on available-for-sale securities.....................................................................
Deferred gains on sale of property ........................................................................................
Other ....................................................................................................................................

Net deferred tax ............................................................................................................................

2004

2005

693
6,130
432
928
9,301
—
1,877
(8,655)
10,706$¥(28,565)(4,245)(1,583)(34,393)$ (280,219)(43,200)(12,514)$ (335,933)¥(23,687)$ (242,829)

¥

6,019
58,0381,447
8,514
71,4108,343
17,990(78,657)$ 93,104

A reconciliation between the normal effective statutory tax rate for the years ended 31st March, 2005 and 2004 and the actual effective tax
rates reflected in the accompanying consolidated statement of income was as follows:
Normal effective statutory tax rate........................................................................................................................
Dividend income not taxable........................................................................................................................
Expenses not deductible for income tax purposes.........................................................................................
Tax benefits not recognized on operating losses of subsidiaries ...................................................................
Equity in earnings of affiliates ......................................................................................................................
Lower income tax rates applicable to income in certain foreign countries....................................................
Decrease in deferred tax assets due to effect of tax rate ................................................................................
Other ............................................................................................................................................................
Actual effective tax rate ........................................................................................................................................

2005

2004

40.7%
(1.2)
0.6
4.3
(5.5)
(2.1)
—
2.4
39.2%

42.0%
(0.5)
1.2
1.2
(1.4)
(2.9)
0.8
1.0
41.4%

8. LEASES:
The Group leases certain machinery, computer equipment and other assets.
Total rental expenses for the years ended 31st March, 2005 and 2004 were ¥357 million ($3,400 thousand) and ¥387 million, respectively,
including ¥357 million ($3,400 thousand) and ¥387 million of lease payments under finance leases.
Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligation under finance lease, depreciation
expense of finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years ended
31st March, 2005 and 2004 was as follows:(thousands of
US dollars)(millions of yen)
2005

Acquisition cost ....................................................................................................................
Accumulated depreciation.....................................................................................................
Net leased property ...............................................................................................................

¥
¥

1,941
(1,010)
931

2004

¥
¥

2005

2,058
(1,168)890$$

18,486(9,619)8,867

Obligations under finance leases:(thousands of
US dollars)(millions of yen)
2004

2005

Due within one year..............................................................................................................
Due after one year.................................................................................................................
Total .....................................................................................................................................

28

¥
¥

326
605
931

¥
¥

2005

310
580
890

$
$

3,105
5,762
8,867

Depreciation expense under finance leases:(thousands of
US dollars)(millions of yen)
2004

2005

Depreciation expense ............................................................................................................

¥

357

¥

2005

387

$

3,400

Depreciation expense, which is not reflected in the accompanying statements of income, is computed by the straight-line method.
9. DERIVATIVES:The Group enters into foreign currency forward contracts to hedge exchange risk associated with certain assets and liabilities denominatedin foreign currencies. Foreign currency forward contracts which qualify for hedge accounting for the years ended 31st March, 2005 and 2004
and such amounts which are assigned to the associated assets and liabilities and are recorded on the balance sheets at 31st March, 2005 and2004, are excluded from disclosure of market value information.
The Group also enters into interest rate swap contracts to manage its interest rate exposures on certain liabilities. Such contracts outstandingat 31st March, 2005 and 2004 were as follows:(millions of yen)
2005

Contract
amountInterest rate swaps:
Fixed rate payments, floating rate receipt ....
Foreign currency forward contracts .....................

¥ 2,936 ¥¥ 171 ¥

Fair
value

Unrealized Contract
amount
loss

(3) ¥
169 ¥

(thousands of US dollars)
2004
Fair
value

(3) ¥ 2,910 ¥
— ¥
(2) ¥

2005

Unrealized Contract
amountloss(16) ¥
— ¥

Fair
value

Unrealized
loss(16) $27,962 $ (29) $— $ 1,629 $ 1,610 $

(29)
(19)

10. SHAREHOLDERS’ EQUITY:The Japanese Commercial Code provides that an amount equal to at least 10% of all cash payments which are made as an appropriation ofretained earnings be appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in capital equal
25% of common stock. The amount of total additional paid-in capital and legal reserve that exceeds 25% of the common stock may be available for dividends by resolution of the shareholders. In addition, the Code permits the transfer of a portion of additional paid-in capital andlegal reserve to the common stock by resolution of the Board of Directors.
Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividend is applicable. In addition,
a semi-annual interim dividend may be paid upon resolution of the Board of Directors, subject to limitations imposed by the Code.
The computation of net income per share is based on the weighted average number of shares of common stock outstanding during eachfiscal year.
11. OTHER INCOME (EXPENSES) — OTHER, NET:
Other income (expenses) — Other, net consisted of the following:(millions of yen)
2004

2005

Gain on sale of property, plant and equipment.............................................................................
Gain on sale of securities ..............................................................................................................
Write-down of securities ..............................................................................................................
Write-off of inventories ................................................................................................................
Impairment of long lived-assets ....................................................................................................
Gain on exemption from future pension obligation of the governmental program ......................
Loss on plant closures ...................................................................................................................
Provision for loss from guarantee of indebtedness of affiliated .....................................................
Retirement benefits paid due to restructuring of business operations ...........................................
Amortization of good-will ............................................................................................................
Other, net .....................................................................................................................................

¥

¥

1,428
1,634
(93)
(998)
(2,357)
5,279
(770)
—
(296)
(1,899)(1,116)812(thousands of
US dollars)

¥

¥

156
2,555
(10)
(13)
—
—
(879)
(506)
(2,836)7(945)(2,471)

2005$

13,60015,562(886)(9,505)(22,448)
50,276(7,333)—(2,819)(18,086)(10,628)$
7,733

12. COMMITMENTS AND CONTINGENCIES:
Contingent liabilities at 31st March, 2004 for trade notes discounted with banks amounted to ¥106 million. Contingent liabilities at 31st
March, 2005 and 2004 for loans guaranteed amounted to ¥3,156 million ($30,057 thousand) and ¥3,456 million, respectively.
Commitments for capital expenditures outstanding at 31st March, 2005 and 2004 were in the approximate amounts of ¥4,456 million ($42,438
thousand) and ¥1,949 million, respectively.

2913. SUBSEQUENT EVENT:
Appropriation of retained earnings
On 29th June, 2005, Nisshinbo’s shareholders authorised the appropriation of retained earnings as follows:(millions of yen)

Cash dividends (¥6.50 per share) ..............................................................................................
Directors’ bonuses.....................................................................................................................

¥

1,349
70

(thousands of US dollars)$

12,848667

14. SEGMENT INFORMATION:
Information about industry segments, geographic segments and sales to foreign customers of the Company and its consolidated subsidiaries
for the years ended 31st March, 2005 and 2004 were as follows:(1) Industry Segments(millions of yen)
2005

TextilesI. Sales and Operating Income
Sales to customers ........................... ¥ 82,164
7Intersegment sales...........................
82,171
Total sales....................................
81,953Operating expenses .........................
218
Operating income (loss).................. ¥Automobile
Brakes¥ 54,306—
54,30648,048¥ 6,258

PapersChemical
Products

Real Estate
Leasing¥ 28,585
928,59426,893¥ 1,701¥ 34,199
708
34,90734,085
¥
822

¥

¥

4,945
436
5,381
2,644
2,737

OthersEliminations/
Corporate¥ 39,222 ¥
1,232
40,45441,319¥(865) ¥

II. Total Assets, Depreciation and Amortization, Impairment of Long lived-assets and Capital Expenditures
Total assets ..................................... ¥ 83,786 ¥ 61,163 ¥ 20,193 ¥ 23,602 ¥ 16,029 ¥ 30,489
951
793 ¥
Depreciation and amortization ....... ¥ 3,193 ¥ 3,658 ¥ 1,451 ¥ 1,000 ¥
688
911 ¥
— ¥
71 ¥
— ¥
527 ¥
Impairment of long lived-assets ...... ¥780
920 ¥ 1,632 ¥Capital expenditures ....................... ¥ 1,790 ¥ 5,290 ¥ 2,092 ¥

¥
¥
¥
¥

Consolidated— ¥(2,392)(2,392)(1,172)(1,220) ¥134,906
—
160
—

¥
¥
¥
¥

243,421—
243,421233,770
9,651

370,168
11,0462,357
12,504(millions of yen)
2004

PapersChemical
Products

Real Estate
Leasing¥ 29,009
11
29,02026,996¥ 2,024¥ 32,098
865
32,96332,351
¥
612

¥

4,941
320
5,261
2,647
2,614

¥ 40,356 ¥
1,652
42,00843,164¥ (1,156) ¥— ¥(2,848)(2,848)(1,713)(1,135) ¥226,883—
226,883
218,387
8,496

II. Total Assets, Depreciation and Amortization and Capital Expenditures
Total assets ..................................... ¥ 92,695 ¥ 56,375 ¥ 20,262
Depreciation and amortization ....... ¥ 3,586 ¥ 3,819 ¥ 1,251
Capital expenditures ....................... ¥ 1,480 ¥ 3,489 ¥ 1,824¥ 23,768¥ 1,052¥795¥ 15,879
¥
852
¥
663

¥ 33,267 ¥¥ 1,216 ¥¥738 ¥126,198——

368,444
11,776
8,989

TextilesI. Sales and Operating Income
Sales to customers ........................... ¥ 68,403
0Intersegment sales...........................
68,403
Total sales....................................
67,678Operating expenses .........................
725
Operating income (loss).................. ¥Automobile
Brakes¥ 52,076—
52,07647,264¥ 4,812¥

OthersEliminations/
Corporate

Consolidated¥¥¥(thousands of US dollars)
2005

TextilesI. Sales and Operating Income
Sales to customers ........................... $782,514
67Intersegment sales...........................
Total sales.................................... 782,581
Operating expenses ......................... 780,505
Operating income (loss).................. $ 2,076

Automobile
Brakes$517,200—
517,200
457,600$ 59,600

PapersChemical
Products

Real Estate
Leasing$272,238
86
272,324
256,124$ 16,200$325,705
6,743
332,448
324,619$ 7,829$ 47,095
4,152
51,24725,181$ 26,066

Others$373,543 $
11,733385,276
393,514$ (8,238) $II. Total Assets, Depreciation and Amortization, Impairment of Long lived-assets and Capital Expenditures
Total assets ..................................... $797,962 $582,505 $192,314 $224,781 $152,657 $290,372
Depreciation and amortization ....... $ 30,410 $ 34,838 $ 13,819 $ 9,524 $ 7,552 $ 9,057
— $
676 $
— $ 5,019 $ 6,553
Impairment of long lived-assets ...... $ 8,676 $Capital expenditures ....................... $ 17,047 $ 50,381 $ 19,924 $ 8,762 $ 15,543 $ 7,429

30

Eliminations/
Corporate

Consolidated— $ 2,318,295(22,781)—(22,781) 2,318,295(11,162) 2,226,381(11,619) $91,914$ 1,284,819
$
—
$
1,524
$
—

$ 3,525,410$ 105,200$
22,448$ 119,086

(2) Geographical Segments
The geographical segments of the Company and its consolidated subsidiaries for the years ended 31st March, 2005 and 2004 were as follows:(millions of yen)
2004

2005

Japan

Eliminations/
Corporate

OthersSales to customers ......................... ¥ 212,134
4,147Interarea transfer ...........................
216,281
Total sales..................................
208,719
Operating expenses .......................
Operating income (loss) ................ ¥ 7,562¥ 31,287
3,607
34,894
31,464¥
3,430¥

Total assets.................................... ¥ 211,686¥ 23,576¥ 134,906¥

Consolidated— ¥ 243,421(7,754)—(7,754)
243,421(6,413)
233,770(1,341) ¥9,651¥ 370,168

Japan

OthersEliminations/
Corporate Consolidated¥ 201,431 ¥ 25,452 ¥
3,353
3,683
28,805205,114
26,646
197,595¥ 7,519 ¥ 2,159 ¥— ¥ 226,883(7,036)—(7,036)
226,883(5,854)
218,387(1,182) ¥8,496¥ 224,214 ¥ 18,031 ¥ 126,199 ¥ 368,444(thousands of US dollars)
2005

Japan

OthersEliminations/
Corporate

Consolidated

Sales to customers ......................... $ 2,020,324 $ 297,971 $— $ 2,318,295
Interarea transfer ...........................
39,49534,353(73,848)—
Total sales.................................. 2,059,819
332,324(73,848) 2,318,295
Operating expenses ....................... 1,987,800
299,658(61,077) 2,226,381
Operating income (loss) ................ $72,019 $32,666 $ (12,771) $91,914
Total assets.................................... $ 2,016,057 $ 224,534 $1,284,819 $ 3,525,410(3) Sales to Foreign Customers
Sales to foreign customers for the years ended 31st March, 2005 and 2004 amounted to ¥45,448 million ($432,838 thousand) and ¥42,210
million, respectively.

Independent Auditors’ Report
To the Board of Directors of
Nisshinbo Industries, Inc.
We have audited the consolidated balance sheets of Nisshinbo Industries, Inc. and consolidated subsidiaries as of 31st March,2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, allexpressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionof Nisshinbo Industries, Inc. and consolidated subsidiaries as of 31st March, 2005 and 2004, and the results of their operations andtheir cash flows for the years then ended, in conformity with accounting principles and practices generally accepted in Japan.
The United States dollar amounts shown in the consolidated financial statements have been translated solely for convenience. We
have reviewed this translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have beentranslated into US dollars on the basis described in Note 1.

Masami Tsukeshiba
Certified Public Accountant

Etsuko Nagashima
Certified Public Accountant

29th June, 2005
Tokyo, Japan

31

Nisshinbo History

1907
1908
1920

1921
1924
1925

1926
1933
1937
1938
1940
1945
1947

1949

1950
1952
1958

1961
1962
1966
1972
1978
1981
1984
1985

32

Nisshin Cotton Spinning Co., Ltd.
established.
The former Kameido Head OfficePlant began operations.
Office opened in Nihonbashi, andthereafter became the head office ofNisshin Cotton Spinning.
Nisshin Cotton Spinning mergedwith Okazaki Boseki Co., Ltd.
(the present Harisaki Plant).
Nagoya Plant began operations (completely burnt down in1945 due to the war, restored in 1951).
Nisshin Cotton Spinning merged with Tokyo BosekiCo., Ltd.
Branch office opened in Nagoya (the present Nagoya
Branch).
Branch office opened in Osaka (the present Osaka
Branch).
Hamamatsu Plant began operations.
Toyama Plant began operations.
Nisshin Cotton Spinning acquired Kawagoe Boseki Co.,
Ltd. (the present Kawagoe Plant).
Nisshin Cotton Spinning merged with Nisshin Rayon Co.,
Ltd. (the present Miai Plant).
Toa Jitsugyo Co., Ltd. established (the company namechanged to Nissin Toa Inc. in 1990).
Nisshin Cotton Spinning acquired the Meiji Plant ofNanshin Seiki Co., Ltd. (the present Fuji Plant).
Non-textiles Division set up and thereafter expanded
operations to include automobile brakes, chemical
products, papers and machine tools.
Nihon Postal Franker Co., Ltd. established.
Nisshin Cotton Spinning listed on the Tokyo Stock
Exchange.
Nitto Asbestos Co., Ltd. established (the company namechanged to Nisshinbo Brake Sales Co., Ltd. in 1987).
Ueda Japan Radio Co., Ltd. established.
Shimada Plant began operations.
Tokushima Plant began operations.
Nippon Kohbunshikan Co., Ltd. established (the company
name changed to Nippon Kohbunshi Co., Ltd. in 1986).
Nisshin Cotton Spinning listed on the first section of theTokyo Stock Exchange.
Nisshin Cotton Spinning’s English company namechanged to Nisshin Spinning Co., Ltd.
Fujieda Plant began operations.
Nisshinbo Do Brasil Industria Textil LTDA. (Brazil)
established.
Nisshin Spinning acquired Tokai Seishi Kougyou
Co., Ltd.
Tatebayashi Chemical Plant (the present Tatebayashi
Plant) began operations.
Nisshin Spinning’s English company name changed to
Nisshinbo Industries, Inc.
Nisshinbo Industries acquired Nisshin Denim Inc.

1986

1987
1989
1992
1993

1995

1996
1997

1998
1999

2000

2001
2002

2004

2005

The Machine Tools Department of the Miai Plant spun
off to create the Miai Mechatronics Plant.
Anti-skid Brake System (now ABS) Division set up.
Hamakita Plant began operations.
Kohbunshi (Thailand) Ltd. established.
Chiba Plant began operations.
The head office relocated to its present
location in Ningyo-cho, Nihonbashi,
Chuo-ku, Tokyo.
Pudong Kohbunshi (Shanghai) Co.,
Ltd. (China) established.
Nisshinbo Automotive Corporation(U.S.A.) established.
Nisshinbo Urban Development Co.,
Ltd. established.
Nisshinbo Somboon Automotive Co., Ltd. (Thailand)established.
Nisshinbo Automotive Manufacturing Inc. (U.S.A.)
established through complete financing from the subsidiary
Nisshinbo Automotive Corporation.
P.T. Gistex Nisshinbo Indonesia established as a joint
venture.
Saeron Automotive Corporation (South Korea)
established.
Research & Development
Center established.
P.T. Nikawa Textile
Industry (Indonesia)
established as a subsidiarythrough the additional
acquisition of stocks.
Continental Teves Corporation established as a joint venture.

Ningbo Sunrise Textile Dyeing and Finishing Co., Ltd.
(China) established as a joint venture.
Ningbo Veken Textile Co., Ltd.
(China) established as a joint
venture.
Nisshinbo Industries acquired
all shares of Iwao & Co., Ltd.
NISSHINBO (SHANGHAI)
CO., LTD. (China) began
operations.
CONTINENTAL TEVES CORPORATION (LIAN
YUN GANG) CO., LTD. (China) established.
Nisshinbo Industries acquired additional stock in Naigai
Shirts Co., Ltd. and CHOYA CORP.
Toyota Plant established.

Nisshinbo GroupThe Nisshinbo Group consists of Nisshinbo Industries, Inc., its 49 subsidiaries, and 7 affiliates.

Main Group Companies (As of March 31, 2005)
Consolidated Subsidiaries
Company
Nisshin Toa Inc.
Ebisu Syokuhu Co., Ltd.
Nisshinbo Yarn Dyed Co., Ltd.
Nisshin Denim Inc.
Nisshin Tex Co., Ltd.
Naigai Shirts Co., Ltd.
Nisshinbo Mobix Co., Ltd.
CHOYA CORP.
Nisshinbo Do Brasil Industria Textil LTDA.
P.T. Naigai Shirts Indonesia
Shanghai Choya Fashion Co., Ltd.
P.T. Nikawa Textile Industry
P.T. Gistex Nisshinbo Indonesia
Nisshinbo Brake Sales Co., Ltd.
Nisshinbo Automotive Corporation
Nisshinbo Automotive Manufacturing Inc.
Nisshinbo Somboon Automotive Co., Ltd.
Saeron Automotive Corporation
Tokai Seishi Kougyou Co., Ltd.
Nihon Postal Franker Co., Ltd.
Nisshinbo Engineering Co., Ltd.
Nippon Kohbunshi Co., Ltd.
Kohbunshi (Thailand) Ltd.
Pudong Kohbunshi (Shanghai) Co., Ltd.
Iwao & Co., Ltd.

Location
Tokyo, Japan
Shizuoka, Japan
Aichi, Japan
Tokushima, Japan
Osaka, Japan
Osaka, Japan
Wakayama, JapanTokyo, Japan
BrazilIndonesia
China
Indonesia
Indonesia
Tokyo, Japan
U.S.A.
U.S.A.
ThailandSouth Korea
Shizuoka, JapanTokyo, JapanTokyo, JapanTokyo, Japan
ThailandChina
Osaka, Japan

Nisshinbo Urban Development Co., Ltd.
Tokyo, Japan
Kansai Nisshinbo Urban Development Co., Ltd. Osaka, Japan
Nisshinbo Europe B.V.
The Netherlands
Nisshinbo Kikai Hanbai Co., Ltd.
Tokyo, Japan
Ueda Japan Radio Co., Ltd.
Nagano, Japan

Capital¥450 million¥50 million¥80 millon¥200 million¥10 million¥90 million¥80 millon¥2,844 million
R$20.075 million
US$0.85 million
34 million Yuan
US$75 million
US$10 million¥150 million
US$88 million
US$15.44 million
BAHT732.6 million
WON8,160 million¥300 million¥310 million¥10 million¥310 million
BAHT100 million
US$7 million¥250 million¥480 million¥30 million
EUR2.165 million¥30 million¥700 million

Business
Textiles, Papers, Food Ingredients
TextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesAutomobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
PapersPapers, Chemical Products
Chemical Products
Plastic Molded Products
Plastic Molded Products
Plastic Molded Products
Textiles, Chemical Products,
Real Estate Leasing
Real Estate Leasing
Real Estate Leasing
Real Estate Leasing
Machine Tools
Electronics

Capital¥3,890 million
US$3.68 million

Business
Automobile Brakes
Automobile Brakes¥160 million

Chemical Products

Subsidiary and Affiliates Accounted for by the Equity Method
Company
Location
Continental Teves Corporation
Tokyo, JapanCONTINENTAL TEVES CORPORATION China(LIAN YUN GANG) CO., LTD.
ASAHI CHEMITECH CO., LTD.
Tokyo, Japan

33

Board of Directors and Statutory Auditors

President

Executive Director

DirectorStanding Statutory Auditor

Yoshikazu Sashida

Yasuo Takeuchi

Masashi Shinagawa

Shoichi Hayashi

Executive Director

Director

Statutory Auditor

Hajime Takagiwa

Yoshihito Onda

Kenji Tasaki

Senior Executive Director

Executive Director

Director

Statutory Auditor

Takashi Iwashita

Shizuka Uzawa

Hideo Yakuden

Tomofumi Akiyama

Senior Executive Director

Director

Statutory Auditor

Kunihiro Toda

Kinjirou Kawashima

Yoshikuni Utsunomiya

Director

Statutory Auditor

Seiichiro Tomizawa

Takehiko Urushihara

Director

Yoshihiro Sakaki
Director

Kazuo Manaka
Director

Yoshio Ide
Director

Masaaki Isobe

Corporate Data
(As of March 31, 2005)

Founded:February 5, 1907

Head Office:2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 Fax: 03-5695-8970
URL: http://www.nisshinbo.co.jp/

Osaka Branch:

2-4-2, Kitakyuhoji-machi, Chuo-ku, Osaka 541-0057, Japan
Tel: 06-6267-5501 Fax: 06-6267-5679

Nagoya Branch:

5-2-38, Sakae, Naka-ku, Nagoya 460-0008, Japan
Tel: 052-261-6151 Fax: 052-263-9480

Employees:

Parent Company
Subsidiaries
Total

3,123
6,382
9,505

Common Stock:34

Authorized:

371,755,000 shares

Issued:208,198,939 shares¥27,588 million — US$263 million

Shareholders:

12,132

Listings:

Tokyo, Osaka, Nagoya, Fukuoka and Sapporo

Transfer Agent:

UFJ Trust Bank Limited
1-4-3, Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan

Organization Chart(As of April 1, 2005)

General Affairs Dept.
Secretary Dept.
Purchasing Dept.
Real Estate Dept.

General Affairs Division
General Meetingof Shareholders

Board of Directors

Chairperson

Accounting and Finance Division

Finance Dept.
Accounting Dept.
Internal Audit Dept.

Human Resources Division

Human Resources Dept.
Labor Administration Dept.
Health and Medicine Dept.
Human Rights Team

Facility and Environmental Management Division

Facility Management and Production Technology Dept.
Environmental and Safety Management Dept.

Research and Development Division

Research Planning Dept.
Research Administration Dept.
Business Implementing Dept.
Intellectual Property Dept.

President
Trademark Committee

Research and Development Center
Policy Board

Board of
Statutory Auditors

Administration Dept.
Fuel Cell Dept.
Optical Dept.
Performance Chemical Dept.

Business Developing Division

Textile DivisionFirst Group

Raw Materials Dept.
Mobilon Dept.
Direct Marketing Dept.
Industrial Materials Dept.

Second Group

Knits Dept.
Shirt Fabrics Dept.
Home Textiles Dept.
Outer-Wear Fabrics Dept.

Third GroupTokyo Textiles Dept.

Fourth Group

Textiles Control Dept.
Engineering Dept.
Textile Research and Development Center

Statutory
Auditors

Marketing Dept.
Global Operation Promotion Office
Shanghai Representative Office
Precision Instrument & Machinery DivisionMarketing Dept.
Engineering Dept.

Brake Division

Global Business Dept.
Quality Assurance Dept.
Brake Research & Development Center

Chemical Products DivisionMarketing Dept.
Engineering Dept.
New Carbon Dept.

Paper Products Division

Household Paper Sales Dept.
Specialty Paper Sales Dept.
Engineering and Development Dept.
Color Systems Dept.

Osaka Branch

Administration Dept.
Nagoya BranchBusiness Planning OfficeInformation Systems OfficeEnvironmental Affairs Committee
Advertising Committee
Product Safety Committee
Human Rights Committee

Shimada Plant
Fujieda Plant
Toyama Plant
Nagoya Plant
Harisaki Plant
Kawagoe Plant
Miai Plant

Miai Machinery Plant
Hamakita Plant
Tokushima Plant
Tatebayashi Plant
Toyota Plant
Chiba Plant
Fuji Plant

Personal Information Protection Committee
Corporate Ethics Committee

35

NISSHINBO ANNUAL REPORT 2005

2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 / Fax: 03-5695-8970
URL: http://www.nisshinbo. co.jp/

Year ended March 31, 2005

Printed in Japan

Annual Report 2005
(Year ended March 31, 2005)

True Colors